Financial Reviewer: David Chen, CFA
Last updated: December 2025
Use the Break-Even Point (BEP) Calculator to determine the minimum quantity of units or total sales revenue required to cover all fixed and variable costs.
Break-Even Point (BEP) Calculator
Break-Even Point Calculator Formula
The Break-Even Point in units is calculated using the following formula:
$$BEP_{Units} = \frac{\text{Total Fixed Costs}}{\text{Selling Price per Unit} – \text{Variable Cost per Unit}}$$
The denominator, $(\text{Selling Price per Unit} – \text{Variable Cost per Unit})$, is known as the **Contribution Margin (CM)**.
Formula Sources: Investopedia, Stripe
Variables Explained
- Total Fixed Costs: Expenses that do not change with the volume of production (e.g., rent, salaries, insurance).
- Selling Price per Unit ($): The price at which one unit of the product is sold to the customer.
- Variable Cost per Unit ($): Expenses that change directly with the volume of production (e.g., raw materials, direct labor, packaging).
Related Calculators
- Target Operating Income Calculator
- Margin of Safety Calculator
- Contribution Margin Ratio Calculator
- Degree of Operating Leverage Calculator
What is the Break-Even Point (BEP)?
The Break-Even Point (BEP) represents the level of sales (in units or revenue) at which a business neither makes a profit nor incurs a loss. At this crucial point, total revenue equals total costs (Fixed Costs + Variable Costs).
Understanding your BEP is fundamental to financial planning. It tells managers the minimum sales target they must achieve just to cover their operational expenses. Anything sold above the BEP contributes directly to the company’s net profit.
BEP analysis is used for pricing strategies, cost management decisions, and assessing the risk associated with new product launches or major investments.
How to Calculate Break-Even Point (Example)
- Determine Fixed Costs: Assume a coffee shop has Total Fixed Costs (rent, salaries, etc.) of $10,000 per month.
- Determine Price and Variable Costs: A specialty coffee is sold for $5.00 (Selling Price) and costs $1.50 in beans, milk, and cups (Variable Cost).
- Calculate Contribution Margin (CM): Subtract the variable cost from the selling price: $$CM = \$5.00 – \$1.50 = \$3.50$$
- Calculate Break-Even Quantity (Units): Divide fixed costs by the contribution margin: $$BEP_{Units} = \frac{\$10,000}{\$3.50} \approx 2,857 \text{ units}$$
- Calculate Break-Even Revenue ($): Multiply the BEP units by the selling price: $$BEP_{Revenue} = 2,857 \times \$5.00 = \$14,285 \text{ revenue}$$
Frequently Asked Questions (FAQ)
What is the difference between fixed and variable costs?
Fixed costs remain constant regardless of production volume (e.g., rent). Variable costs change in direct proportion to production volume (e.g., raw materials).
Why can’t I calculate BEP if the price equals the variable cost?
If the Selling Price equals the Variable Cost, the Contribution Margin is zero. Since you must divide Fixed Costs by the Contribution Margin, you would be dividing by zero, which is mathematically impossible, as you would never cover your fixed costs.
Does BEP analysis work for multiple products?
Yes, but it requires calculating a weighted-average contribution margin based on the typical sales mix (the percentage of total sales each product represents).
What does a high BEP indicate?
A high Break-Even Point suggests the business has high fixed costs or a low contribution margin, making it riskier because it requires a significantly higher sales volume to start generating a profit.