Finance Tools/Break-even Calculator
Break-even Calculator
Analyze break-even point based on fixed and variable costs
Cost Information
Rent, salaries, etc. - costs independent of sales volume
Materials, shipping, etc. - costs proportional to sales
Price per unit sold
Break-even Analysis
Enter values
Break-Even Calculator Guide
Find when your business covers all costs
What is Break-Even Analysis?
Break-even analysis determines the point where total revenue equals total costs, meaning no profit or loss. It's crucial for business planning, pricing strategies, and understanding the minimum sales volume needed to cover expenses.
How to Use This Calculator
- Enter your fixed costs (rent, salaries, etc.)
- Input the selling price per unit
- Enter the variable cost per unit
- See the break-even point in units and revenue
Business Tips
- Lower fixed costs reduce your break-even point
- Higher prices or margins accelerate profitability
- Use this for new product launches and expansion plans
Formula
Break-Even Units = Fixed Costs ÷ (Price per Unit - Variable Cost per Unit). Break-Even Revenue = Break-Even Units × Price per Unit.
Frequently Asked Questions
What are fixed costs vs. variable costs?
Fixed costs remain constant regardless of sales volume (rent, insurance, salaries, equipment leases). Variable costs change with production (materials, shipping, sales commissions, packaging). Some costs are semi-variable (utilities have a base charge plus usage). Correctly categorizing costs is crucial for accurate break-even analysis.
What is contribution margin and why does it matter?
Contribution margin is selling price minus variable cost per unit—the amount each sale 'contributes' toward covering fixed costs. A $50 product with $30 variable cost has a $20 contribution margin. You need to sell enough units to have total contribution margin equal to fixed costs to break even.
How can I lower my break-even point?
Reduce the break-even point by: decreasing fixed costs (negotiate rent, reduce overhead), increasing prices (if market permits), reducing variable costs (better suppliers, efficiency), or improving product mix toward higher-margin items. Even small changes in contribution margin can significantly impact break-even volume.
Should I use break-even analysis for pricing decisions?
Yes, but as one of several factors. Break-even tells you the minimum sales needed to cover costs at a given price, not whether that price is competitive or optimal. Consider market positioning, competitor pricing, customer willingness to pay, and volume expectations. Test different price points to see how break-even volume changes.
What are the limitations of break-even analysis?
Break-even analysis assumes: costs are truly fixed or perfectly variable (rarely exact), selling price remains constant (but discounts happen), only one product is sold (product mix complicates analysis), and all units produced are sold. Use it as a planning tool, not a precise prediction. Regular recalculation with actual data improves accuracy.