Break Even Analysis Calculator

The Break Even Analysis Formulas (BEP)

Break even analysis is based on where Total Revenue equals Total Costs. You can solve for any of the four key variables using these formulas:

Understanding the CVP Variables

• Fixed Costs (F): Costs that do not change with production volume, such as rent, salaries, and insurance.
• Price per Unit (P): The selling price for one unit of your product.
• Variable Cost per Unit (V): Costs that change directly with production, such as raw materials and direct labor.
• Break-Even Quantity (Q): The number of units you must sell to cover all costs, resulting in zero profit and zero loss.

What is Break Even Analysis?

Break even analysis (BEA) is a fundamental financial tool used by businesses. It identifies the break-even point (BEP), which is the exact point at which a company’s total revenues are equal to its total costs (both fixed and variable). At this point, the company is neither making a profit nor incurring a loss.

This analysis is a crucial tool for managers and entrepreneurs. It helps determine the minimum sales volume required to be profitable, assists in setting prices, and allows for “what-if” analysis (e.g., “What happens if my rent increases?”). Understanding your break-even analysis is the first step toward building a sustainable and profitable business strategy.

How to Perform a Break Even Analysis (Example)

Let’s use an example to see how the analysis works. Imagine you own a coffee shop.

1. Identify Fixed Costs (F): Your monthly rent, employee salaries, and utilities total $10,000.
2. Identify Price per Unit (P): You sell one cup of coffee for $5.00.
3. Identify Variable Cost (V): The coffee beans, cup, and lid for one coffee cost $2.00.
4. Calculate Contribution Margin (P – V): This is the profit from each cup. $5.00 (Price) – $2.00 (Variable Cost) = $3.00.
5. Apply the Formula (Q = F / (P – V)): Divide your Fixed Costs by your Contribution Margin. $10,000 / $3.00 = 3,333.33 units.

Result: Your analysis shows you must sell 3,334 cups of coffee (rounding up) each month just to cover all your costs and break even.

Related Financial Calculators

Use our other tools to get a complete financial picture for your business.

• CVP Analysis Calculator
• Contribution Margin Calculator
• Margin of Safety Calculator
• Operating Leverage Calculator

Frequently Asked Questions (FAQ)

What is a good contribution margin?
A “good” contribution margin depends entirely on the industry. A software company might have a 90% margin, while a grocery store might have a 20% margin. The key is that it must be high enough to cover all fixed costs and eventually generate a profit.

How can I use break even analysis?
You use this analysis to make critical decisions. To lower your break-even point (which is good), you have three options: 1) Increase your price (P), 2) Decrease your variable costs (V), or 3) Decrease your fixed costs (F). Our calculator lets you model all three scenarios.

What is the break-even point in units vs. dollars?
This calculator solves for units (Quantity). To find the break-even point in dollars (sales revenue), you simply multiply the break-even quantity (Q) by the price per unit (P).

Why is Contribution Margin important in this analysis?
The term (P – V) is the “Contribution Margin per Unit.” It’s the core of the analysis, representing the amount from each sale that “contributes” to paying off fixed costs. If this number is zero or negative, it’s impossible to ever break even.