Calculate the Break-Even Point (BEP) in units and sales revenue. Includes detailed examples and use cases for business analysis.
Break-Even Point (BEP) Calculator
Determine the point at which your total revenue equals your total costs (both fixed and variable), resulting in zero profit or loss. Calculate your break-even point in units and sales revenue.
Calculation Inputs
Understanding the Break-Even Point (BEP)
The Break-Even Point (BEP) is a critical concept in break-even analysis and Cost-Volume-Profit (CVP) analysis. It identifies the level of sales—either in terms of units sold or total revenue—at which a business's total revenues exactly equal its total costs (the sum of fixed and variable costs). At the break-even point, the business generates neither a profit nor a loss.
Key Components:
- Fixed Costs: Costs that do not change with the level of production or sales volume within a relevant range (e.g., rent, salaries, insurance, depreciation on equipment).
- Variable Costs: Costs that change in direct proportion to the volume of production or sales (e.g., raw materials, direct labor involved in production, sales commissions).
- Selling Price Per Unit: The revenue generated from selling one unit of the product or service.
- Contribution Margin: This is the difference between the Selling Price Per Unit and the Variable Cost Per Unit (Price - VC). It represents the amount each unit sold contributes towards covering fixed costs and then generating profit.
Formulas Used:
- Contribution Margin Per Unit = Selling Price Per Unit - Variable Cost Per Unit
- Contribution Margin Ratio (%) = (Contribution Margin Per Unit / Selling Price Per Unit) * 100
- Break-Even Point (Units) = Total Fixed Costs / Contribution Margin Per Unit
- Break-Even Point (Sales Revenue) = Total Fixed Costs / Contribution Margin Ratio (as decimal)
OR BEP (Units) * Selling Price Per Unit
Limitations:
Basic BEP analysis assumes linear relationships between costs, volume, and revenue, and often doesn't account for factors like changing prices over different volumes, stepped fixed costs (costs that are fixed within a range but jump at certain volume levels), or the product mix in multi-product businesses.
Use Cases for the BEP Calculator
Understanding your break-even point is valuable for various business decisions:
- Business Planning & Feasibility: Determine if a new venture or product line is potentially viable and how many sales are needed to avoid losses.
- Pricing Strategy: Analyze how changes in selling price impact the number of units needed to break even and achieve profitability.
- Cost Management: Identify the impact of fixed and variable cost changes. Helps target cost reduction efforts effectively.
- Setting Sales Goals: Establish clear, quantifiable sales targets required to cover costs and move into profitability.
- Make-or-Buy Decisions: Compare the cost of producing an item internally (using its BEP) versus purchasing it from an external supplier.
- Evaluating Changes: Assess the financial impact of decisions like investing in new equipment (changing fixed and potentially variable costs) or launching marketing campaigns (increasing fixed costs).
- Securing Funding: Demonstrate financial understanding and viability to potential investors or lenders by showing a clear break-even analysis in your business plan.
- Scenario Planning: Run "what-if" scenarios by changing cost or price assumptions to understand potential risks and opportunities.
Examples with Step-by-Step Solutions
Click on each example to see the breakdown:
Example 1: Coffee Shop
Scenario: A small coffee shop wants to know how many cups of coffee they need to sell monthly to break even.
Inputs:
- Total Fixed Costs (Rent, salaries, utilities): $3,000 / month
- Selling Price per Cup: $4.00
- Variable Cost per Cup (Beans, milk, cup, lid): $1.50
Steps:
- Calculate Contribution Margin (CM) per Unit: $4.00 - $1.50 = $2.50
- Calculate BEP (Units): $3,000 / $2.50 = 1,200 units
- Calculate BEP (Revenue): 1,200 units * $4.00/unit = $4,800
Result: The shop needs to sell 1,200 cups of coffee per month, generating $4,800 in revenue, to break even.
Example 2: Widget Manufacturer
Scenario: A factory produces widgets.
Inputs:
- Total Fixed Costs (Factory lease, machinery depreciation, admin): $50,000 / year
- Selling Price per Widget: $25.00
- Variable Cost per Widget (Materials, direct labor): $10.00
Steps:
- Calculate CM per Unit: $25.00 - $10.00 = $15.00
- Calculate BEP (Units): $50,000 / $15.00 ≈ 3,334 units (rounding up as you can't sell fractions)
- Calculate BEP (Revenue): 3,334 units * $25.00/unit = $83,350
Result: The factory needs to sell approximately 3,334 widgets per year, generating $83,350 in revenue, to break even.
Example 3: Consulting Service
Scenario: A consultant charges by the hour.
Inputs:
- Total Fixed Costs (Office rent, software subscriptions, insurance): $4,000 / month
- Selling Price per Hour: $100.00
- Variable Cost per Hour (Minimal - perhaps transaction fees, specific materials per project - let's say): $5.00
Steps:
- Calculate CM per Unit (Hour): $100.00 - $5.00 = $95.00
- Calculate BEP (Units/Hours): $4,000 / $95.00 ≈ 42.1 hours (round up to 43 billable hours)
- Calculate BEP (Revenue): 42.1 hours * $100.00/hour ≈ $4,210 (or use 43 hours * $100 = $4300)
Result: The consultant needs to bill approximately 43 hours per month, generating around $4,210 - $4,300 in revenue, to break even.
Example 4: SaaS Subscription
Scenario: A software company offers a monthly subscription.
Inputs:
- Total Fixed Costs (Salaries, server costs, marketing): $20,000 / month
- Selling Price per User per Month: $15.00
- Variable Cost per User per Month (Support, incremental server load): $2.00
Steps:
- Calculate CM per User: $15.00 - $2.00 = $13.00
- Calculate BEP (Users): $20,000 / $13.00 ≈ 1,539 users
- Calculate BEP (Revenue): 1,539 users * $15.00/user = $23,085
Result: The SaaS company needs approximately 1,539 active subscribers per month, generating $23,085 in revenue, to break even.
Example 5: High Fixed Costs (Manufacturing Plant)
Scenario: A large plant with expensive machinery.
Inputs:
- Total Fixed Costs: $1,000,000 / year
- Selling Price per Unit: $500.00
- Variable Cost per Unit: $200.00
Steps:
- Calculate CM per Unit: $500.00 - $200.00 = $300.00
- Calculate BEP (Units): $1,000,000 / $300.00 ≈ 3,334 units
- Calculate BEP (Revenue): 3,334 units * $500.00/unit = $1,667,000
Result: The plant needs to sell approximately 3,334 units annually ($1,667,000 revenue) to break even, highlighting the volume needed to cover high fixed costs.
Example 6: Low Contribution Margin
Scenario: Selling a commodity product with tight margins.
Inputs:
- Total Fixed Costs: $5,000 / month
- Selling Price per Unit: $10.00
- Variable Cost per Unit: $9.00
Steps:
- Calculate CM per Unit: $10.00 - $9.00 = $1.00
- Calculate BEP (Units): $5,000 / $1.00 = 5,000 units
- Calculate BEP (Revenue): 5,000 units * $10.00/unit = $50,000
Result: Due to the low contribution margin, a high volume of 5,000 units ($50,000 revenue) is needed monthly just to break even.
Example 7: High Contribution Margin
Scenario: Selling a digital product with low variable costs.
Inputs:
- Total Fixed Costs: $2,000 / month
- Selling Price per Unit: $50.00
- Variable Cost per Unit (Transaction fee): $1.00
Steps:
- Calculate CM per Unit: $50.00 - $1.00 = $49.00
- Calculate BEP (Units): $2,000 / $49.00 ≈ 41 units
- Calculate BEP (Revenue): 41 units * $50.00/unit = $2,050
Result: With a high contribution margin, only about 41 units ($2,050 revenue) need to be sold monthly to break even.
Example 8: Home Bakery
Scenario: Selling custom cakes from home.
Inputs:
- Total Fixed Costs (Portion of utilities, licenses, website): $300 / month
- Average Selling Price per Cake: $60.00
- Average Variable Cost per Cake (Ingredients, packaging, delivery fuel): $25.00
Steps:
- Calculate CM per Cake: $60.00 - $25.00 = $35.00
- Calculate BEP (Cakes): $300 / $35.00 ≈ 8.57 (round up to 9 cakes)
- Calculate BEP (Revenue): 9 cakes * $60.00/cake = $540
Result: The home bakery needs to sell 9 cakes per month (generating $540 revenue) to cover costs.
Example 9: Target Profit Preparation
Scenario: A business wants to know its BEP before calculating sales needed for a $5,000 profit target.
Inputs:
- Total Fixed Costs: $12,000 / period
- Selling Price per Unit: $100.00
- Variable Cost per Unit: $60.00
Steps (for BEP):
- Calculate CM per Unit: $100.00 - $60.00 = $40.00
- Calculate BEP (Units): $12,000 / $40.00 = 300 units
- Calculate BEP (Revenue): 300 units * $100.00/unit = $30,000
Result: The break-even point is 300 units ($30,000 revenue). (To find the units for $5,000 profit, calculate ($12,000 + $5,000) / $40 = 425 units).
Example 10: Pricing Change Impact
Scenario: Using Example 6 inputs (FC=$5k, P=$10, VC=$9), what happens if price increases to $11?
Inputs:
- Total Fixed Costs: $5,000 / month
- New Selling Price per Unit: $11.00
- Variable Cost per Unit: $9.00
Steps:
- Calculate New CM per Unit: $11.00 - $9.00 = $2.00
- Calculate New BEP (Units): $5,000 / $2.00 = 2,500 units
- Calculate New BEP (Revenue): 2,500 units * $11.00/unit = $27,500
Result: By increasing the price by $1 (and contribution margin), the break-even point drops significantly from 5,000 units ($50k revenue) to 2,500 units ($27.5k revenue).
Frequently Asked Questions (FAQs)
What does the Contribution Margin tell me?
It shows how much revenue from each unit sold is left over after covering the variable costs associated with producing that unit. This remaining amount contributes towards covering fixed costs and, once fixed costs are covered, becomes profit.
What happens if my selling price is lower than my variable cost?
Your contribution margin per unit will be negative, meaning you lose money on every unit sold even before considering fixed costs. In this scenario, you can never break even, and the calculator will indicate an error or an infinitely high break-even point.
How can I lower my break-even point?
You can lower your BEP by: increasing your selling price per unit, decreasing your variable cost per unit, or decreasing your total fixed costs.
Does BEP tell me how much profit I will make?
No, BEP only tells you the point of zero profit/loss. To calculate the sales needed for a *target profit*, you add the target profit amount to the fixed costs in the numerator of the BEP formula: (Fixed Costs + Target Profit) / Contribution Margin Per Unit.
How often should I calculate my BEP?
It's useful to recalculate your BEP whenever your significant costs (fixed or variable) or your selling prices change, or as part of regular business planning and review cycles (e.g., annually or quarterly).
