How do you calculate break-even point?

Break-Even Point (units) = Fixed Costs / (Price per Unit - Variable Cost per Unit). This tells you how many units you need to sell to cover all costs.

What are fixed costs vs variable costs?

Fixed costs stay the same regardless of sales volume (rent, salaries, insurance). Variable costs change with production volume (materials, shipping, commissions).

Why is break-even analysis important?

Break-even analysis helps you set realistic sales targets, make pricing decisions, understand your cost structure, and determine the minimum performance needed for business viability.

How can I lower my break-even point?

You can lower your break-even point by reducing fixed costs, decreasing variable costs per unit, increasing your selling price, or a combination of these strategies.

Free Break-Even Calculator

Calculate Your Break-Even Point

Fixed Costs (Monthly) Rent, salaries, insurance, etc.

$

Price per Unit

$

Variable Cost per Unit Materials, shipping, etc.

$

How to Use This Calculator

1. Enter Fixed Costs: Monthly expenses that don't change (rent, salaries, insurance, utilities)
2. Enter Price per Unit: How much you sell each product/service for
3. Enter Variable Cost per Unit: Costs that change with each sale (materials, shipping, commissions)
4. View Results: See how many units you need to sell to break even

Understanding the Formula

Break-Even Point (Units)

Break-Even Units = Fixed Costs / (Price per Unit - Variable Cost per Unit)

The number of units you must sell to cover all costs.

Break-Even Revenue

Break-Even Revenue = Break-Even Units × Price per Unit

The total sales revenue needed to break even.

Contribution Margin

Contribution Margin = Price per Unit - Variable Cost per Unit

How much each unit contributes to covering fixed costs and profit.

Example Calculation

Scenario: You run an online store selling handmade candles.

• Fixed Costs: $5,000/month (rent, utilities, salaries, website hosting)
• Price per Candle: $25
• Variable Cost per Candle: $10 (wax, wick, jar, shipping)

Step 1: Calculate Contribution Margin

$25 - $10 = $15 per candle

Step 2: Calculate Break-Even Units

$5,000 / $15 = 333.33 ≈ 334 candles

Step 3: Calculate Break-Even Revenue

334 candles × $25 = $8,350

Result: You need to sell 334 candles per month (about 11 per day) to break even. Any sales beyond that are profit!

Tips for Improving Your Break-Even Point

💰

Reduce Fixed Costs

Negotiate rent, switch to cheaper software, or outsource instead of hiring full-time.

📦

Lower Variable Costs

Negotiate with suppliers, buy in bulk, optimize shipping, or find cheaper materials.

💵

Increase Prices

Test higher prices, add premium options, or bundle products for higher average order value.

📈

Increase Sales Volume

Improve marketing, expand to new channels, or offer promotions to drive more sales.

Frequently Asked Questions

What is a break-even point?

The break-even point is when your total revenue equals total costs, meaning you're not making a profit or loss. It's the minimum sales needed to cover all expenses.

What's the difference between fixed and variable costs?

Fixed costs stay the same regardless of sales (rent, salaries). Variable costs change with each sale (materials, shipping). Understanding this distinction is crucial for accurate break-even analysis.

Is a lower break-even point always better?

Generally yes, but context matters. A lower break-even point means less risk and faster profitability. However, some businesses intentionally have higher fixed costs (better equipment, more staff) to scale faster once they're profitable.

How often should I recalculate my break-even point?

Recalculate whenever costs or prices change significantly. For most businesses, quarterly reviews are sufficient, but monthly is better for fast-growing or volatile businesses.

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Break-Even Calculator