Breakeven Point: Definition, Examples, and How to Calculate

You can use this calculator to determine the number of units required to break even. The basic objective of break-even point analysis is to ascertain the number of units of products that must be sold for the company to operate without loss. In other words, the no-profit-no-loss point is the break-even point.

Business Breakeven Points

If you’re looking to purchase a specific machine or a truck for your business, consider taking an equipment loan. This type of financing provides some of the lowest interest rates, especially if you take your loan from a traditional bank. The loan amount you can borrow depends on the value of the equipment you need to buy. The equipment will serve as the collateral for financing, and the loan term should coincide with how long you expect to use the equipment. The primary way to reach BEP faster is to increase sales, which is no easy feat.

Learn about semi-variable costs

The BEP is the number of units that you must sell for a deal or business to break-even. In accounting, the margin of safety is the difference between actual sales and break-even sales. Managers utilize the margin of safety to know how much sales can decrease before the company or project becomes unprofitable. Once you know the number of break even units, it will give you a target which you and your staff can aim towards. A break even point could be an ongoing target, say 20 units per week.

Use Our Breakeven Analysis Calculator To Determine If You May Make A Profit

Potential investors in a business not only want to know the return to expect on their investments, but also the point when they will realize this return. This is because some companies may take years before turning a profit, often losing money in the first few months or years before breaking even. For this reason, break-even point is an important part of any business plan presented to a potential investor.

What is a variable cost?

Remember, the break-even point is the number of units you must sell so that your business has neither a profit nor a loss. Also calculates fixed, variable, and component costs as a percentage of sales. On the basis of values entered by you, the calculator will provide you with the number of units you would require to reach a break-even point. While Break-Even Point is an excellent tool for evaluating business profitability, other methods can provide more insights. The following table outlines different alternative methods, their pros, and cons.

The result shows that Company A must produce and sell 500,000 units of its product to pay for their business’s fixed and variable costs. By reaching this number of unit sales, the company has not gained profits yet. Once Company A sells over 500,000 units, that’s when it will earn profits. When your business reaches its break even point (BEP), your company’s revenue is precisely equal to its total estimated business costs.

And for all you non-metric system folks, we’ll be using the imperial system where applicable. If you are a house painter, and your average price for painting a house is $7,000, a break-even analysis will calculate how many homes you must paint each month to cover your costs. The break-even point (BEP) helps businesses with pricing decisions, sales forecasting, cost management, and growth strategies. A business would not use break-even to measure its repayment of debt or how long that repayment will take to complete. With the break even result you can start to analyze the micro components that create the overall cost. Quantifying those components correctly allows you to identify areas where you may be able to cut costs.

Companies should proceed with caution every time they decide to increase prices. More often, it could mean losing a chunk of consumers who purchase your product because of affordability. Before increasing the price, you must conduct surveys and market research. It’s also important to check your competitor’s prices and any unique features to their products. But if the market allows it, you can certainly increase your price up to a level that consumers will keep buying. Our free version of the online break-even calculator allows you to quickly obtain the break-even point for a single product, as well as the profit generated for a given level of sales.

  1. Let’s take a look at some examples of Break-Even Point calculations for different individuals in a table format.
  2. Fixed costs do not depend on the volume of production and sales and do not change over time.
  3. If your company has a twelve-month contract for local newspaper advertising, you might want to consider advertising a fixed cost.
  4. This break-even calculator allows you to perform a task crucial to any entrepreneurial endeavor.
  5. After unit variable costs are deducted from the price, whatever is left—​​​the contribution margin—​is available to pay the company’s fixed costs.
  6. Our guide will discuss the fundamentals of the break even point and how to calculate this financial benchmark.

Depending on your needs, you may need to calculate your profit margin or markup to find your revenue… This will allow you to calculate the maximum price you may pay for goods, given all of your other numbers. You can also check out our markup calculator and margin calculator. Finance Strategists has an advertising relationship with some of the companies included on this website.

Meaning that adding the total for all products and services monthly should account for all products and services. You may also want to do the calculation individually for each product or service if the products or service sales vary per month. It is also helpful to note that the sales price per unit minus variable cost per unit is the contribution margin per unit.

You might decide to raise the prices, but the comparable items in the market must be considered before doing that. For example, raising prices doesn’t necessarily mean more profit as sales are typically demand led. That means that the more people want things, the higher the demand. The less availability, the easier it is to increase the relative value of a product. This is why big companies like apple release their new iPhone in a controlled manner. Their strategy being to create demand and sustain that demand for as long as possible to keep the prices high.

On the other hand, if you’ve been renting commercial space for a while, try to talk to your landlord. Explain the challenges of maintaining your business, and if they could help adjust your rent. Landlords may actually agree to reduce your rent to keep you for the long-term. This is a better proposition, especially if they know they’ll have a hard time looking for a new tenant.

It will quickly calculate the units you need to sell to reach the break-even point (BEP). Compare cost, overheads and business factors again return to calculate your break even point when selling multiple items/products. Break-Even Point is essential for businesses small business bookkeeping basics as it helps them determine the minimum amount of sales needed to cover their costs. A breakeven point tells you what price level, yield, profit, or other metric must be achieved not to lose any money—or to make back an initial investment on a trade or project.