Business Break-Even Point Calculator
Determine exactly how many units you need to sell to cover all your costs.
What is a Break-Even Point?
The break-even point (BEP) in business is the production level where total revenues equal total expenses. In other words, it is the moment your business stops losing money and starts becoming profitable. Every dollar earned beyond the break-even point is pure profit.
Why Calculate Your Break-Even Point?
Understanding your BEP is fundamental for pricing strategies, financial planning, and risk management. It helps you answer critical questions such as:
- Is my current pricing model sustainable?
- How many products must I sell to pay my rent and employees?
- What happens to my profit if I reduce my variable costs by 10%?
- Can I afford to lower my prices to beat a competitor?
The Break-Even Formula
To calculate the break-even point manually, you use the following formulas:
1. Contribution Margin = Selling Price per Unit – Variable Cost per Unit
2. Break-Even Point (Units) = Total Fixed Costs / Contribution Margin
3. Break-Even Sales = Break-Even Units × Selling Price per Unit
Real-World Example
Imagine you run a custom t-shirt business. Your monthly fixed costs (rent, software, utilities) are $2,000. It costs you $10 in materials and labor to make one shirt (variable cost), and you sell each shirt for $25.
- Contribution Margin: $25 – $10 = $15
- Break-Even Units: $2,000 / $15 = 133.33 units
In this scenario, you must sell 134 shirts per month to cover all your costs. Starting from the 135th shirt, you are making a profit.
Key Components Explained
Fixed Costs
These are expenses that remain constant regardless of how many units you sell. Common examples include office rent, administrative salaries, insurance, property taxes, and equipment leases.
Variable Costs
These costs fluctuate in direct proportion to your production volume. Examples include raw materials, packaging, shipping fees, and sales commissions. The more you produce, the higher your total variable costs will be.
Contribution Margin
This is the amount of money left over from each sale after paying the variable costs. This "margin" goes toward "contributing" to the payment of fixed costs. Once fixed costs are paid, the remaining margin becomes profit.