Determine exactly when your business will start making a profit.
Rent, salaries, insurance, and utilities that don't change with sales.
The amount you charge customers for one unit of your product.
Materials, shipping, and labor directly tied to producing one unit.
Please ensure the Selling Price is higher than the Variable Cost.
Break-Even Units:0
Break-Even Sales Revenue:$0.00
Contribution Margin per Unit:$0.00
Contribution Margin Ratio:0%
What is a Break-Even Point?
The break-even point (BEP) is the moment when your total revenue equals your total expenses. At this specific stage, your business is making exactly $0 in profit—but it is also losing $0. Understanding this metric is vital for any entrepreneur because it identifies the minimum performance required to avoid financial loss.
The Break-Even Formula
To calculate the break-even point in units, we use the following mathematical formula:
Break-Even Point (Units) = Fixed Costs / (Selling Price per Unit – Variable Cost per Unit)
Key Components Explained
Fixed Costs: These are expenses that remain constant regardless of how many items you sell. Examples include office rent, administrative salaries, website hosting, and insurance.
Selling Price per Unit: The gross revenue you generate from a single sale.
Variable Costs: Expenses that fluctuate directly with production volume. This includes raw materials, packaging, shipping costs, and sales commissions.
Contribution Margin: This is the Selling Price minus the Variable Cost. It represents the amount of money from each sale that "contributes" to covering fixed costs.
Realistic Example: Coffee Shop Business
Imagine you are opening a small coffee stand:
Fixed Costs: $2,000 per month (Rent and Equipment Lease)
Selling Price per Latte: $5.00
Variable Cost per Latte: $1.50 (Coffee beans, milk, cup, sleeve)
The Calculation:
Contribution Margin = $5.00 – $1.50 = $3.50
Break-Even Units = $2,000 / $3.50 = 572 Units
In this scenario, you must sell 572 lattes every month just to pay your bills. The 573rd latte is where you finally start earning profit.
How to Lower Your Break-Even Point
Lowering your break-even point reduces business risk. You can achieve this by: