Break-Even Point Calculator
Determine exactly how many units you need to sell to cover your costs.
Calculation Analysis
Break-Even Units
0
Break-Even Sales
$0.00
Contribution Margin
$0.00
Estimated Profit
$0.00
Understanding the Break-Even Point (BEP)
The break-even point is a critical financial metric for business owners, entrepreneurs, and managers. It represents the stage where total revenue equals total expenses, meaning your business is neither making a profit nor incurring a loss. Every dollar earned after the break-even point contributes directly to your net profit.
The Break-Even Formula
To calculate the break-even point in units, we use the following formula:
Break-Even Point (Units) = Total Fixed Costs / (Price Per Unit – Variable Cost Per Unit)
Key Terms Explained
- Fixed Costs: These are expenses that remain constant regardless of how many products you sell. Examples include rent, insurance, administrative salaries, and equipment leases.
- Variable Costs: These costs fluctuate in direct proportion to production volume. Examples include raw materials, packaging, and direct labor costs for manufacturing.
- Contribution Margin: This is the Selling Price minus the Variable Cost. It represents the amount of money from each sale that "contributes" toward covering fixed costs.
Example Calculation
Imagine you run a specialty coffee shop. Your monthly expenses look like this:
| Item | Type | Amount |
|---|---|---|
| Rent & Utilities | Fixed Cost | $3,000 |
| Coffee Beans & Milk (per cup) | Variable Cost | $1.50 |
| Price per cup | Selling Price | $5.00 |
Step 1: Calculate Contribution Margin: $5.00 – $1.50 = $3.50 per cup.
Step 2: Divide Fixed Costs by Margin: $3,000 / $3.50 = 857.14.
Result: You must sell at least 858 cups of coffee per month to break even.
Why Knowing Your Break-Even Point Matters
Calculating your BEP helps you make informed decisions about pricing, cost management, and sales targets. If your break-even point is higher than your maximum production capacity, your business model is unsustainable, and you must either raise prices or lower your variable costs.