How to use the sales mix break-even calculator
- Enter the fixed costs for the period, such as a month or a year, and an optional profit goal.
- For each product enter its price, its variable cost per unit and its share of the mix as units sold, such as 5, 3 and 2.
- Read the break-even units, the break-even sales and the weighted contribution margin per unit.
- Use the table to see how many units of each product that means, and try the presets to see how a different mix changes the answer.
Formula
weighted margin per unit = sum of share x (price - variable cost)
break-even units = (fixed costs + profit goal) / weighted margin per unit
units of a product = break-even units x its share of the mix
break-even sales = break-even units x weighted price
The share of a product is its mix number divided by the total of the mix numbers. Dividing by the weighted contribution margin ratio instead gives the same sales figure.
Three products and $30,000 of fixed costs
Basic sells for $40 with a $25 variable cost, Standard for $60 with $35 and Premium for $100 with $55. The mix is 5, 3 and 2, so the shares are 50%, 30% and 20%. The weighted margin is 0.5 x 15 + 0.3 x 25 + 0.2 x 45 = $24.00 per unit.
Break-even units are 30,000 / 24 = 1,250, split into 625, 375 and 250 units. The weighted price is 0.5 x 40 + 0.3 x 60 + 0.2 x 100 = $58, so break-even sales are 1,250 x 58 = $72,500, and the contribution margin ratio is 24 / 58 = 41.38%. With a profit goal of $12,000 the answer becomes 42,000 / 24 = 1,750 units.
Why the mix changes the answer
A single product has one break-even point. With several products the point depends on what fraction of sales each one makes, because high-margin products pull the weighted margin up and low-margin ones pull it down. If customers shift toward the premium item, fewer total units are needed to cover the same fixed costs.
For one product on its own use the Break-Even Calculator. The Weighted Average Margin Calculator shows the margin of a basket, and the Absorption vs Variable Costing Calculator shows how fixed costs enter reported income.
Whole units and rounding
The exact answer is usually a fraction of a unit. The table shows both the exact units and the next whole number for each product, and the sum of the rounded-up units is always enough to cover the costs. A product with a margin below zero is allowed, but the overall weighted margin must stay above zero or the tool explains that no break-even exists.
Assumptions and limits
- Prices, variable costs and fixed costs stay constant over the range of sales.
- The products keep selling in the same proportions as you enter.
- All production is sold in the period, so there is no change in stock.
- Taxes, discounts, returns and the time value of money are not included.
Frequently asked questions
What should I enter for the mix?
Enter any numbers that show the proportion of units sold. If you sold 500, 300 and 200 units, you can type those or 5, 3 and 2, because only the ratios matter.
Can I use sales dollars for the mix instead of units?
This tool expects units. If you only know the share of revenue, convert each share to units by dividing the dollars by the price before you enter the mix.
What if one product has a negative margin?
It can stay in the list, since a loss leader may be part of the real mix. The tool only stops when the weighted margin of the whole mix is not above zero.
Does a high break-even mean the business is risky?
Not by itself. It tells you how many units you must sell to cover fixed costs, and you then compare that with what you expect to sell and how steady those sales are.