Calculate your break-even point, sales volume, fixed costs, variable costs, and profit with our free Break-Even Calculator.
Break-even units = Fixed costs ÷ (Selling price per unit − Variable cost per unit)The calculation uses the price, revenue, cost, rate or quantity fields shown by the tool. Gross and net figures are not interchangeable, and taxes, overhead, returns, discounts or financing should be included only in the field intended for them.
A Break Even Calculator, or analysis, allows you to find the number of units you must sell, or the amount of revenue you must generate before your revenue equals your costs. When there is no profit or loss, this is called the break-even point. The break-even point is important for pricing decisions, starting a new business, in product evaluation or if you want to know if your sales target is achievable.
The Break even calculation is based mainly on the fixed costs, the variable cost of each unit and the selling price. Once you know your break-even point, you can set a sales target more logically and see what the impact would be if you increased or decreased the price or the costs.
Break even point is the amount of sales at which revenue exactly offsets the total costs associated with that revenue. At break even point your business has broken even for your money used on fixed and variable costs but not made a profit.
For example, suppose that an enterprise has fixed costs of $10,000, sells a good or service for $50, and incurs variable costs of $30 for each unit sold. eachsale earns an additional $20 for the costs of $10,000 which must be earned by purchasing 500 units of your product:
Break-Even Units = $10,000 ÷ ($50 − $30) = 500 units
A 500 unit break-even position.After 500 units further sales can start making a profit. As the costs and selling price will be the same.
The standard formula for calculating the break-even point in units is:
Break-Even Point in Units = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit)
The value in the parentheses is also known as the per unit contribution margin. This is simply the amount each sale helps cover the fixed cost for.
For break-even revenue, you can use the contribution margin ratio:
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Where:
Contribution Margin Ratio = (Selling Price − Variable Cost per Unit) ÷ Selling Price
Consider a small U.S. business that sells handmade products for $75 per unit. Its variable cost is $45 per unit, and its monthly fixed costs are $12,000.
The break-even point is:
$12,000 ÷ ($75 − $45) = 400 units
The business therefore needs to sell 400 units per month to cover the costs included in this example. Break-even revenue is:
400 × $75 = $30,000
A Simplified Financial Model Operating Profit At 400 Units $ -215 Operating profit is zero at 400 units. Fewer units sold mean a loss will be incurred and at higher unit sales levels a profit may be generated if assumptions hold.
Break-even analysis is not only good for computing an amount of sales that would be needed to breakeven. Business owners, entrepreneurs, students, managers and planners are using break-even analysis to determine if a product is or is not financially viable.
Higher operating costs, for example, will increase the amount of output needed to make up. When there are higher fixed costs you need more operating results to break.
A higher sales price usually raises contribution margin and lowers break even volume, as long as customers can be persuaded to continue buying at the higher price.
For each product sold, lower costs will provide a contribution towards meeting fixed expenditure and so more products must be produced if a particular spending requirement is to be satisfied.
Contribution margin tells us how much each unit brings in to cover the fixed costs. The higher this margin typically correlates to a lower break-even point.
Since different products a company sells, will different margins, changing sales mix will also change the overall break-even outcome.
The projected sales volume in no way changes your core break-even formula - but by comparing projected sales to your break-even volume you’ll be able to see if you’re setting up an operating margin sufficient to afford you some wiggle room.
Renting facilities, paying staff salaries, taking out insurance policies and paying subscription services and equipment usage fees can all push fixed expenses up and affect the sales level required to break even with those expenses.
Discounts, payment transaction fees, commissions and sales associated costs are further areas which take money away from each sale, and will consequently require an increased break even revenue target.
Should the calculated break-even point be greater than expected sales then it is necessary to look at ways to reduce the break even point. This may include reducing non-essential fixed costs, negotiating better prices for suppliers, improving production efficiencies, increasing selling price or targeting those products which contribute to profit in a bigger way.
As an illustration, if we lower the variable cost from $45 to $40 and the selling price stays at $75, the contribution margin increases from $30 to $35. Given fixed costs of $12,000 the break-even point goes down from 400 to about 343 units.
Nevertheless, savings resulting from these efforts are not inherently benefits; the reduction in costs could give rise to other problems with savings that impact product quality, customer support, legal compliancies or even reduce customer demand! Break-even calculations are most effective when integrated with sound assumptions
By getting to break-even you don’t mean your business will make profit, it is where the revenue you produce meets the costs included in the model -profit only occurs once you exceed these costs.
For a simple unit-based model:
Profit = (Selling Price − Variable Cost per Unit) × Units Sold − Fixed Costs
You should end up with 'close to zero' profit if you sell exactly the break-even number of units calculated. The contribution margin on additional sales of units above this will improve profit.
The Break Even Calculator determines the quantity of output or revenue the business needs to produce until total revenue covers total expenses. Usually requires fixed expenses, sales price, and price per unit costs. The output is the level of sales the business has just made that has recovered those costs in the model, but still has not achieved any form of operating profits yet.
To calculate break-even unit, all you have to do is to divide the fixed cost over the contribution margin per unit which equals the amount of fixed cost divided by the price and the variable costs of the product . For instance the cost fixing may also go 20000 / 40 =500 unites which is called the break even points.
Break-even Sales in units: Fixed Costs Contribution Margin Ratio. For using this you need to calculate the contribution margin ratio which is the contribution margin per unit of product divided by the selling price per unit. This calculation comes in hand when you would like to determine your sales figure rather than the quantity of a unit sold and needed to sell
It should be noted that this could be a very wide range but essentially these are costs which don't change directly with the number of units sold/produced over the range used for your analysis (the range can differ from business to business but examples could be; rent, wages, insurance, software, admin costs etc.).
Variable costs are those that tend to fluctuate as the levels of production or sales vary. Some common examples include costs of raw materials, product packaging, sales commissions, transaction processing fees, and a few delivery costs. In determining the unit break-even point, a good estimate for the variable cost per unit sold is necessary.
Should the selling price per unit and the variable cost per unit be equal, the contribution margin is zero. Under this scenario, no sale makes any contribution towards fixed costs, and the firm break-even formula cannot arrive at the sales volumes. The business has to adjust its prices or its variable costs/ its costs structure.
Enter a realistic current case, calculate the result, then raise the cost or lower the selling price. The comparison shows how sensitive the margin, break-even point, tax amount or total cost is to that change.
Break-even units depend on fixed costs and the contribution earned per unit after variable cost. When selling price is not greater than variable cost, increasing volume does not create a normal break-even point.
Fixed costs remain relatively stable within the analyzed range, while variable costs change with units. Some costs are mixed and may need a documented assumption.
Compare different prices, costs and volumes. Capacity limits and demand determine whether the calculated break-even volume is achievable.