For any business owner or entrepreneur, determining the Break-Even Point (BEP) is a critical step in financial planning. This metric represents the exact moment when your total revenue equals your total expenses—meaning you have made zero profit but also incurred zero loss. Knowing this number allows you to set sales targets and price your products effectively.
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)
The denominator (Price – Variable Cost) is also known as the Contribution Margin. It represents how much money from each sale goes toward covering your fixed overheads.
Key Definitions
Fixed Costs: Expenses that do not change regardless of how much you sell (e.g., rent, insurance, salaries, software subscriptions).
Variable Costs: Expenses that fluctuate directly with production volume (e.g., raw materials, packaging, shipping, sales commissions).
Selling Price: The amount you charge the customer for one unit of your product or service.
Example Calculation
Imagine you run a small candle business:
Fixed Costs: $1,200 (Monthly studio rent and utilities)
Selling Price: $25 per candle
Variable Cost: $10 (Wax, wick, jar, and fragrance)
Your contribution margin is $15 ($25 – $10). To find the break-even units: $1,200 / $15 = 80 units. You must sell 80 candles per month just to cover your costs. Any candle sold after the 80th unit contributes directly to your profit.
Why Does Your Break-Even Point Matter?
Tracking your BEP helps you make data-driven decisions. If your break-even point is too high (e.g., you can't realistically produce or sell that many units), you have three options:
Lower Fixed Costs: Negotiate a lower rent or cut unnecessary subscriptions.
Increase Prices: Raising the selling price increases your contribution margin.
Reduce Variable Costs: Find a cheaper supplier for raw materials to widen your margin.
function calculateBreakEven() {
var fixedCosts = parseFloat(document.getElementById("fixedCosts").value);
var pricePerUnit = parseFloat(document.getElementById("pricePerUnit").value);
var variableCost = parseFloat(document.getElementById("variableCost").value);
var resultDiv = document.getElementById("breakEvenResult");
var unitsOutput = document.getElementById("unitsOutput");
var revenueOutput = document.getElementById("revenueOutput");
var errorDisplay = document.getElementById("errorDisplay");
var unitResultText = document.getElementById("unitResultText");
var revenueResultText = document.getElementById("revenueResultText");
// Reset display
errorDisplay.innerHTML = "";
resultDiv.style.display = "block";
unitResultText.style.display = "block";
revenueResultText.style.display = "block";
// Validation
if (isNaN(fixedCosts) || isNaN(pricePerUnit) || isNaN(variableCost)) {
errorDisplay.innerHTML = "Please enter valid numeric values for all fields.";
unitResultText.style.display = "none";
revenueResultText.style.display = "none";
return;
}
if (pricePerUnit <= variableCost) {
errorDisplay.innerHTML = "Selling price must be higher than variable cost to reach a break-even point.";
unitResultText.style.display = "none";
revenueResultText.style.display = "none";
return;
}
// Calculation logic
var contributionMargin = pricePerUnit – variableCost;
var breakEvenUnits = fixedCosts / contributionMargin;
var breakEvenRevenue = breakEvenUnits * pricePerUnit;
// Output formatting
unitsOutput.innerHTML = Math.ceil(breakEvenUnits).toLocaleString() + " units";
revenueOutput.innerHTML = "$" + breakEvenRevenue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
}