What is Break-Even Point?
The break-even point is the level of sales where total revenue equals total costs, resulting in no profit or loss. It helps businesses understand the minimum sales required to avoid losses.
Break Even Calculator – Calculate Units & Revenue Needed for Profitability
Use our free break even calculator to determine how many units you need to sell to cover costs. Essential for business planning, startup analysis, pricing strategy, and financial forecasting.
⚖️ Tip: Break-even helps you understand how many units you must sell to avoid losses.
Total fixed expenses (rent, salaries, etc.)
Price at which you sell each unit
Costs that vary with production (materials, labor, etc.)
Break Even Point Calculator: Formula, Examples & Business Applications
What is Break-Even Point?
The break-even point is the level of sales where total revenue equals total costs (fixed + variable). At this point, a business makes neither profit nor loss. Imagine your business is a giant see-saw.
- On one side, you have all your costs (rent, salaries, materials, marketing).
- On the other side, you have your revenue from sales.
The break-even point is the perfect balance. It’s the specific number of sales where your revenue exactly covers every single cost. No profit yet, but crucially, no loss. Every sale after this point is where your profit finally begins. Think of it as your business's baseline for survival. Knowing it is the first step to true profitability.
How to calculate break even point
Break-Even Point (Units) = Fixed Costs ÷ (Selling Price per Unit - Variable Cost per Unit)
Break-Even Point (Revenue) = Break-Even Units × Selling Price per Unit
How to Calculate Yourself
Step 1: Identify Your Fixed Costs (The "Gotta-Pay-'Em-No-Matter-What" Costs)
These are your monthly expenses that don't change, even if you sell one bag of coffee or one thousand.
- Brewed Awakening's Fixed Costs: Rent ($1,200), Salaries ($2,500), Insurance ($300), Website Hosting ($50).
- Total Fixed Costs = $4,050 per month.
Step 2: Know Your Numbers Per Item
- Selling Price per Unit: They sell their premium coffee for $25 per bag.
- Variable Cost per Unit: These costs vary with each bag they make: Coffee beans ($8), Packaging ($2), Shipping ($5).
- Total Variable Cost = $15 per bag.
Step 3: The Contribution Margin
It tells you how much money from each sale is left over to contribute towards covering your fixed costs.
- Contribution Margin = Selling Price - Variable Cost
- $25 (Sale Price) - $15 (Cost to Make) = $10 per bag.
This means every time Brewed Awakening sells a bag, $10 goes towards paying the rent and salaries.
Step 4: Do the Magic Math
Now, we find the magic number of bags needed to cover all those fixed costs.
- Break-Even Point (in Units) = Total Fixed Costs ÷ Contribution Margin
- $4,050 ÷ $10 per bag = 405 bags.
Step 5: Translate That into Revenue =
How much money do those 405 bags represent?
- Break-Even Point (in Revenue) = 405 bags x $25 per bag = $10,125.
The "Aha!" Moment: Brewed Awakening now knows that they must sell 405 bags per month to generate $10,125 in revenue just to cover all their costs. Bag #406? That's when the profit party starts
Why Break-Even Analysis Matters
- Pricing Strategy: Set prices that cover all costs
- Risk Assessment: Understand sales targets to avoid losses
- Business Planning: Plan production and inventory levels
- Investment Decisions: Evaluate new product viability
Frequently Asked Questions
How Do You Calculate Break-Even Point?
Break-even point (units) is calculated using the formula:
- Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost)
- This tells you the number of units you need to sell to cover all costs.
Why is Break-Even Analysis Important?
Break-even analysis is crucial for business planning. It helps determine:
- The minimum sales required to cover costs
- Profit potential at different sales levels
- Pricing and cost decisions for products or services
Related Financial Metrics
For more financial analysis, try our ROI Calculator or Profit Margin Calculator.