Break-Even Point Calculator
Please ensure the Selling Price is higher than the Variable Cost.
Break-Even Point (Units):
Break-Even Point (Sales):
Contribution Margin:
How to Calculate Break-Even Point
The break-even point is the production level or sales volume at which total revenues equal total expenses. At this point, your business is neither making a profit nor incurring a loss. Understanding this metric is critical for pricing products, setting sales targets, and managing business risk.
The Break-Even Formula
To calculate the break-even point in units, use the following formula:
Break-Even Units = Total Fixed Costs / (Selling Price per Unit – Variable Cost per Unit)
To calculate the break-even point in total sales dollars:
Break-Even Sales = Break-Even Units × Selling Price per Unit
Example Scenario:
Suppose you run a candle business. Your monthly fixed costs (rent, utilities, equipment lease) are $2,000. You sell each candle for $25. It costs you $10 in wax, wick, and fragrance to make each candle (variable cost).
Calculation:
Contribution Margin = $25 – $10 = $15
Break-Even Point = $2,000 / $15 = 133.33 Units
In this case, you must sell 134 candles per month to start making a profit.
Suppose you run a candle business. Your monthly fixed costs (rent, utilities, equipment lease) are $2,000. You sell each candle for $25. It costs you $10 in wax, wick, and fragrance to make each candle (variable cost).
Calculation:
Contribution Margin = $25 – $10 = $15
Break-Even Point = $2,000 / $15 = 133.33 Units
In this case, you must sell 134 candles per month to start making a profit.
Key Components of the Analysis
- Fixed Costs: Expenses that remain constant regardless of how many items you sell (e.g., rent, executive salaries, insurance).
- Variable Costs: Costs that fluctuate in direct proportion to production volume (e.g., raw materials, packaging, direct labor).
- Contribution Margin: The amount left over from each sale after paying variable costs. This "contributes" toward covering fixed costs and then generating profit.
Why Break-Even Analysis Matters
By conducting a break-even analysis, business owners can determine if a business idea is viable. If the number of units required to break even is higher than the total market size or your production capacity, the business model may need adjustment. It also helps in deciding whether to raise prices or find ways to lower variable costs to reach profitability faster.