Break-Even Point Calculator
Determine exactly how many units you need to sell to cover your total costs and start generating profit.
Calculation Results
What is the Break-Even Point (BEP)?
The Break-Even Point is the specific production level or sales volume where total revenues exactly equal total expenses. At this point, your business is neither making a profit nor incurring a loss. Every unit sold beyond the break-even point contributes directly to your net profit.
The Break-Even Formula
To calculate the break-even point in units, use the following formula:
Break-Even Point (Units) = Total Fixed Costs / (Sales Price per Unit – Variable Cost per Unit)
Understanding the Components
- Fixed Costs: These are expenses that remain constant regardless of how much you sell. Examples include office rent, administrative salaries, insurance, and equipment leases.
- Sales Price per Unit: The amount of money you charge customers for a single unit of your product or service.
- Variable Cost per Unit: Expenses that vary directly with production levels. This includes raw materials, direct labor, and shipping costs per item.
- Contribution Margin: This is the Sales Price minus the Variable Cost. It represents the amount of money from each sale that "contributes" toward covering fixed costs.
Example Calculation
Imagine you run a candle business. Your monthly rent and utilities (Fixed Costs) are $2,000. You sell each candle for $20 (Sales Price). The wax, wick, and jar for each candle cost you $8 (Variable Cost).
Contribution Margin: $20 – $8 = $12 per candle.
Break-Even Units: $2,000 / $12 = 166.67 units.
In this scenario, you must sell at least 167 candles per month to cover all your expenses. Selling 168 candles would result in your first $12 of profit.
Why This Analysis Matters for Your Business
Performing a break-even analysis helps business owners set pricing strategies, determine the feasibility of a new product line, and set realistic sales targets. It also helps in identifying when to reduce variable costs or increase prices to reach profitability faster.