What is a break-even point?
The break-even point is where total costs and total revenue are equal: no loss and no profit. The SBA suggests working it out for your business plan, because investors and lenders want to know when a business will start to make money.
Source SBA · Break-even point ↗
How to calculate the break-even point
Here it is with your numbers:
- Contribution margin per unit: $50.00 − $30.00 = $20.00.
- Break-even units: $10,000.00 ÷ $20.00 = 500.
- Contribution margin ratio: $20.00 ÷ $50.00 = 0.4, or 40.00% of each sale.
- Break-even sales: $10,000.00 × $50.00 ÷ $20.00 = $25,000.00.
- At 600 units: 600 × $20.00 − $10,000.00 = $2,000.00.
It means each unit you sell after the first 500 adds $20.00 of profit.
Profit or loss at different sales
Your break-even row is highlighted. Below it you lose money; each unit above it adds the contribution margin to your profit.
| Units sold | Sales | Profit (− is a loss) |
|---|---|---|
| 250 | $12,500.00 | −$5,000.00 |
| 375 | $18,750.00 | −$2,500.00 |
| 500 | $25,000.00 | $0.00 |
| 600 | $30,000.00 | $2,000.00 |
| 625 | $31,250.00 | $2,500.00 |
| 750 | $37,500.00 | $5,000.00 |
| 1,000 | $50,000.00 | $10,000.00 |
Fixed and variable costs
The SBA's examples of fixed costs are rent or lease payments, salaries, property taxes, insurance, interest and depreciation. Costs that are partly fixed and partly variable, such as phone service, repairs, fuel and power, are best split into their fixed and variable parts. Count costs you pay quarterly or yearly as a monthly amount.
The SBA also suggests adding a little extra, say 10%, to cover costs you can't predict. The formula is for one product or service; do each one separately if their sales differ.
FAQs
What is meant by break-even point?
It is the point where total costs and total revenue are equal, so you make no loss and no profit. Below it you lose money; each sale above it adds profit.
Source SBA · Break-even point ↗
How do I calculate the break-even point?
Divide your fixed costs by what each unit leaves after its variable cost: fixed costs ÷ (price − variable cost per unit). For sales dollars, divide the fixed costs by the contribution margin ratio, (price − variable cost) ÷ price.
Is there a break-even formula in Excel?
You type the formula yourself. With fixed costs in B1, the price in B2 and the variable cost in B3, =ROUNDUP(B1/(B2-B3),0) gives the units to sell, rounded up to a whole unit.