Break-Even Point Calculator
Determine exactly how many units you need to sell to cover your costs.
Understanding the Break-Even Point
For any business owner or entrepreneur, the Break-Even Point (BEP) is a critical financial milestone. It is the moment when your total revenue perfectly matches your total expenses. Before this point, you are operating at a loss; after this point, you begin to generate profit.
How to Calculate the Break-Even Point
To use this calculator effectively, you must understand three core components:
- Fixed Costs: These are expenses that remain the same regardless of how much you sell. Examples include office rent, administrative salaries, insurance, and equipment leases.
- Selling Price Per Unit: The amount of money you receive for every individual item or service sold.
- Variable Costs: These are costs that increase as production increases. This includes raw materials, direct labor for production, and shipping fees.
Break-Even (Units) = Fixed Costs / (Selling Price Per Unit – Variable Cost Per Unit)
Real-World Example
Imagine you are launching a custom T-shirt business. Your monthly rent and software subscriptions (Fixed Costs) total $2,000. You sell each shirt for $25, and it costs you $10 to buy the shirt and print the design (Variable Cost).
The math would look like this:
- Contribution Margin = $25 – $10 = $15
- Break-Even Units = $2,000 / $15 = 133.33
In this scenario, you must sell 134 shirts every month just to cover your bills. The 135th shirt represents your first dollar of actual profit.
Why Monitoring Your BEP Matters
Calculating your break-even point is not a "one and done" task. You should recalculate whenever you face changes in your supply chain (variable costs increase) or when considering a price hike. This tool helps you perform "What-If" analysis to see how small changes in your pricing strategy can significantly impact your business viability.