Chartered Financial Analyst and small business consultant with over a decade of experience in financial modeling and cost accounting.
This financial tool calculates the break-even point for your business. Enter any three variables—Fixed Costs, Sale Price, Variable Cost, or Target Units—and our calculator will solve for the fourth.
Break-Even Unit Calculator
Break-Even Point (BEP) Formula
The break-even analysis is based on a single core formula. Here are the four ways to use it, depending on which variable you need to find:
Q = F / (P – V)
Solve for Fixed Costs (F):
F = Q * (P – V)
Solve for Sale Price (P):
P = (F / Q) + V
Solve for Variable Cost (V):
V = P – (F / Q)
Variables Explained
- Fixed Costs (F): Costs that do not change with production levels, such as rent, salaries, and insurance.
- Sale Price per Unit (P): The amount you sell one unit of your product for.
- Variable Cost per Unit (V): Costs that change directly with production, such as raw materials and direct labor.
- Break-Even Units (Q): The number of units you must sell to cover all costs, resulting in zero profit and zero loss.
Related Calculators
- Contribution Margin Calculator
- Target Profit Calculator
- Cost-Volume-Profit (CVP) Calculator
- Operating Leverage Calculator
What is the Break-Even Point?
The break-even point (BEP) is a fundamental concept in business and finance. It represents the exact point at which a company’s total revenues equal its total costs. At this point, the company is neither making a profit nor incurring a loss—it is simply “breaking even.” Any sales made beyond the break-even point contribute to profit.
This calculation is a crucial part of any business plan or financial projection. It helps managers and entrepreneurs understand the minimum level of sales required to be profitable. By analyzing the BEP, a company can make informed decisions about pricing strategies, cost control measures, and investment opportunities. If a business knows it cannot realistically sell enough units to reach the break-even point, it may need to pivot its strategy, reduce costs, or reconsider the venture entirely.
The core of the calculation lies in the **contribution margin**, which is the Sale Price per Unit (P) minus the Variable Cost per Unit (V). This margin is the amount each unit sold “contributes” towards covering the fixed costs. Therefore, to find the break-even point in units, you simply divide the total fixed costs by the contribution margin per unit.
How to Calculate Break-Even Point (Example)
Let’s find the break-even units (Q) for a new coffee shop.
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Identify Fixed Costs (F):
The shop’s total monthly fixed costs (rent, salaries, utilities) are $10,000.
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Identify Sale Price (P):
The average price of a cup of coffee is $5.00.
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Identify Variable Cost (V):
The variable cost for each cup (beans, cup, lid, milk) is $1.50.
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Apply the Formula: Q = F / (P – V)
First, find the contribution margin: $5.00 (P) – $1.50 (V) = $3.50.
Next, divide the fixed costs by the contribution margin:
Q = $10,000 / $3.50 ≈ 2,857.14 -
Conclusion:
The coffee shop must sell 2,858 cups of coffee (rounding up, as you can’t sell a fraction of a cup) per month to cover all its costs and break even.
Frequently Asked Questions (FAQ)
The difference, (P – V), is the contribution margin. If V is greater than P, you lose money on every unit you sell, and it becomes mathematically impossible to ever cover your fixed costs. Your business would incur compounding losses with every sale.
First, calculate the break-even units (Q) using this calculator. Then, multiply that number by your sale price (P). For example, if your break-even is 2,858 units at $5.00 each, your break-even in sales dollars is 2,858 * $5.00 = $14,290.
Fixed costs remain the same regardless of how many units you produce (e.g., monthly rent). Variable costs change in direct proportion to your production (e.g., raw materials). If you produce zero units, your variable costs are zero, but you still have to pay your fixed costs.
A target profit calculation is a simple modification of the break-even formula. You treat your desired profit as an additional fixed cost. The formula becomes: Units = (Fixed Costs + Target Profit) / (P – V). This tells you how many units you must sell to achieve a specific profit goal.