Business Break-Even Point Calculator
How to Calculate Your Business Break-Even Point
Understanding the break-even point is critical for any entrepreneur or business manager. It represents the specific stage where your total revenue exactly equals your total expenses. At this point, you are neither making a profit nor losing money.
The Break-Even Formula
To calculate the break-even point in units, we use the following formula:
Break-Even Units = Total Fixed Costs / (Sales Price per Unit – Variable Cost per Unit)
Key Terms Explained
- Fixed Costs: These are expenses that stay the same regardless of how much you sell (e.g., rent, insurance, salaries, software subscriptions).
- Variable Costs: Expenses that increase as your production increases (e.g., raw materials, packaging, shipping, sales commissions).
- Contribution Margin: This is the Sales Price minus the Variable Cost. It's the amount each sale contributes toward covering fixed costs.
Example Calculation
Imagine you run a candle business. Your fixed costs (rent and equipment) are $2,000 per month. You sell each candle for $20, and the materials to make one candle (wax, wick, jar) cost $8.
- Fixed Costs: $2,000
- Contribution Margin: $20 – $8 = $12
- Break-Even Point: $2,000 / $12 = 166.67 units
In this scenario, you must sell at least 167 candles every month just to cover your costs. Every candle sold after the 167th contributes directly to your profit.
Why This Matters for SEO and Business Growth
Tracking your break-even point allows you to set realistic sales targets, price your products correctly, and identify when it's time to cut costs. If your break-even point is too high, you may need to increase prices or find cheaper suppliers for your materials.