Break-even point calculator
The break-even point is the point at which the total cost and total revenue of your business are equal. It is the exact point at which point production costs equal revenues for the product.
For a new business, the break-even point is a crucial calculation in your business plan. It lets potential investors know the return on their investments and at which point they will see those returns. New businesses can take years to turn a profit so knowing the break-even point can be particularly important to new investors.
For an existing business, knowing how to calculate the break-even point is a useful tool for analyzing costs and evaluating profits at various sales volumes. This information helps you price smarter, set revenue targets, catch missing expenses, limit financial strain, and fund your business.
The formula for finding the break-even point in units is:
Fixed Costs ÷ (Fixed Price per Unit - Variable Costs per unit) = Break-Even Point in Units [1]
Elements of the break-even analysis
Discover the meaning of each aspect in the break-even point formula:
Unit
A unit is an item being made or sold. This could be a product or a stock or even a house (which would be one unit).
Fixed costs
Fixed costs are costs associated with unit production that do not change based on the number of units sold, hence they are fixed at a constant rate. Also known as overhead costs or expenses, they include outputs such as loan payments, rent, insurance, or taxes. These things cost the same even at zero production.
Variable costs
Variable costs are the costs that change based on the number of units and can change based on whether you scale up or down, so they are related to your production volume. Variable costs can include things such as electricity, packaging, raw materials, and wages. [2]
Once you can identify these key variables you can use the break-even point calculator to find the precise point at which your business is neither at a loss nor a gain.