Break-Even Point Calculator
Increase the profitability of your business with Calcopolis.
What is a break-even point?
The Break-even point (in business) is the amount of revenue when you start making profits. Before a company reaches the break-even point, it has a loss, but once the company exceeds the break-even point, it becomes profitable.
How to calculate the break-even point?
While calculating the break-even point is relatively simple, gathering precise information about the company is crucial.
Especially important is information regarding costs of running the company, both fixed and variable costs. Incorrect estimations may result in misleading break-even point values.
The break-even point may be calculated from two angles. You may calculate the minimum amount of sales in dollars when the company becomes profitable or the minimum number of units sold.
Break Even Point Formula
As mentioned before, the sweet spot between profit and loss can be expressed as revenue required or minimum units sold. For both types, there are different formulas.
Break Even Point in Units Formula
If you wish to find out the exact number of units required for reaching the break-even point, use the following equation:
BEP = (Fixed_Costs + Variable_Costs) / Unit_Selling_Price
Where:
- BEP - Break-even point in units
- Fixed_Costs - Operating costs independent from sales volume (i.e., rental costs)
- Variable_Costs - Costs related to each transaction (i.e., commission fee)
- Unit_Selling_Price - The selling price of each item
Break Even Point in Sales Formula
If you wish to find out the exact amount of dollars you need to make in sales in order to reach break-even, use the following formula:
BEP = (Fixed_Costs + Variable_Costs)
Where:
- BEP - Break-even point in units
- Fixed_Costs - Operating costs independent from sales volume (i.e., rental costs)
- Variable_Costs - Costs related to each transaction (i.e., commission fee)
This simple formula will tell you the exact value of the break-even point in sales in dollars.
Break Even Price Formula
Sometimes you may reach break even by increasing the pricing of your products or services. If you wish to calculate at what price your company will reach break-even, use the following formula:
BEP = (Fixed_Costs + Variable_Costs) / Sold_Quantity
Where:
- BEP - Break-even point in units
- Fixed_Costs - Operating costs independent from sales volume (i.e., rental costs)
- Variable_Costs - Costs related to each transaction (i.e., commission fee)
- Sold_Quantity - The number of items sold
It is the most basic accounting formula every entrepreneur needs to know.
How to keep the company profitable?
Once your company reaches profitability, you need to track the margin of safety, which is the indicator of how much your sales exceed the break-even point. Thanks to this you will keep your sales under control.
What affects the break-even point?
There are two important factors that affect the company's profitability the most: the costs and the pricing policy.
The costs are usually difficult to change, at least in the short term, but the pricing policy is much easier to change.
By increasing the gross margin of your products, you could reach the break-even point faster since this would require selling fewer items.
If you prefer to operate on markup instead of margin, you may use our markup calculator as well.
Authors
Created by Lucas Krysiak on 2022-06-10 15:14:41 | Last review by Mike Kozminsky on 2022-06-15 13:33:37