Break-even point and pricing

What does this tool answer?

The tool has two tabs:

• Break-even point: the lowest monthly sales that cover all your expenses with no profit and no loss, how much you need to sell each day to reach it, how far your current sales can fall before you start losing money (the margin of safety), and what sales achieve the profit you want.
• Pricing: the right selling price for a given profit percentage, the difference between “markup on cost” and “profit margin on price”, and how much your sales must grow to make up for a discount you are considering.

Fixed and variable expenses

Fixed expenses are what you pay every month whether you sell or not: rent, fixed salaries, basic electricity, subscriptions and financing installments.

Variable cost rises with every sale: the cost of goods or raw materials, sales and POS commissions, and packaging and delivery. You enter it in the tool as a percentage of sales: if every 100 SAR of sales costs you 65 SAR in goods and commissions, the percentage is 65%.

The formulas

• Contribution margin = 1 − variable cost percentage: what is left from each riyal of sales to cover fixed expenses.
• Monthly break-even point = fixed expenses ÷ contribution margin.
• Break-even point in units = fixed expenses ÷ (selling price − variable cost per unit), rounded up because you cannot sell part of a unit.
• Required daily sales = break-even point ÷ working days in the month (26 days by default).
• Margin of safety = (current sales − break-even point) ÷ current sales.
• Sales for the target profit = (fixed expenses + target profit) ÷ contribution margin.

Worked example

A business has fixed expenses of 120,000 SAR a month, a variable cost of 65% of sales, current sales of 400,000 SAR, and wants a monthly profit of 30,000 SAR:

• Contribution margin = 1 − 65% = 35%.
• Break-even point = 120,000 ÷ 35% = 342,857.14 SAR a month.
• Required daily sales = 342,857.14 ÷ 26 = 13,186.81 SAR.
• Margin of safety = (400,000 − 342,857.14) ÷ 400,000 = 14.29%: sales can fall by this percentage before the loss begins.
• Sales for the target profit = (120,000 + 30,000) ÷ 35% = 428,571.43 SAR.

The tool also adds a reading of the result: here, every percentage point you cut from the variable cost lowers the break-even point by about 9,523.81 SAR.

Margin of safety: how to read it

The tool writes a status for the margin of safety: risk if it is negative (your sales are below the break-even point, so you are losing money), caution from zero to 10%, and good above 10%. This is a rule of thumb, not a regulatory standard, and the right margin depends on how volatile and seasonal your business's sales are.

Pricing: markup on cost is not profit margin

A common mistake: “I added 30% to the cost, so my profit is 30%.” In fact, profit is measured from the selling price:

• Selling price = cost × (1 + markup percentage), so a product that costs 100 SAR with a 30% markup sells for 130 SAR.
• Profit margin = markup percentage ÷ (1 + markup percentage) = 30% ÷ 130% = 23.08% of the selling price, not 30%.
• To earn 25% of the price: price = cost ÷ (1 − 25%) = 133.33 SAR, which is a markup of 33.33% on cost.

The effect of a discount: required sales increase = profit margin ÷ (profit margin − discount) − 1. With a 25% margin, a 10% discount needs a 66.67% increase in the number of sales to keep the same gross profit. And if the discount is equal to or greater than your margin, it wipes out your profit.

Limits of the tool

The tool assumes the variable cost percentage stays the same however much sales grow, and that fixed expenses do not change during the month. This is a well-known simplification in break-even analysis. It does not calculate Zakat or VAT. This is an estimate based on the numbers you entered, not financial or investment advice.

Frequently asked questions

Content last reviewed: 2026-10-27