Break-Even Point Calculator
Determine exactly when your business starts making a profit.
Rent, salaries, insurance, etc.
Price charged to customers.
Materials, shipping, labor per unit.
Calculation Results
Break-Even Units
0
Items sold to cover costs
Break-Even Sales
$0.00
Revenue required
Understanding the Break-Even Point
The Break-Even Point (BEP) is the crucial juncture where your total business revenues equal your total expenses. At this specific point, your business is neither making a profit nor incurring a loss. Every unit sold after reaching this point contributes directly to your net profit.
The Break-Even Formula
To calculate the break-even point in units, we use the following formula:
Break-Even Units = Fixed Costs / (Selling Price – Variable Cost)
Key Components Explained
- Fixed Costs: These are expenses that remain constant regardless of how much you sell. Examples include rent, administrative salaries, insurance, and equipment leases.
- Variable Costs: These costs fluctuate directly with your production or sales volume. Examples include raw materials, packaging, shipping, and sales commissions.
- Contribution Margin: This is the Selling Price minus the Variable Cost. It represents the amount of money from each sale that "contributes" toward covering your fixed costs.
Real-World Example
Imagine you run a specialty coffee shop:
- Fixed Costs: $3,000 per month (Rent & Utilities)
- Selling Price: $5.00 per latte
- Variable Cost: $1.50 (Coffee beans, milk, cup)
Your Contribution Margin is $3.50 ($5.00 – $1.50). To break even, you divide your fixed costs ($3,000) by your margin ($3.50), resulting in 857 lattes per month. To find the dollar amount, you multiply 857 by the $5.00 selling price, which equals $4,285 in monthly sales.