FREE Break-Even Point Calculator
Break Even Point Outcomes
You must strike a balance between placing orders at the appropriate times and maintaining the appropriate quantity of things on hand as buffer stock. Reorder points and the safety stock formula can be used for this:
- Break Even Type
- Fixed Cost
- Variable Cost per Unit
- Price per Unit
- Your Break Even Point
But how will you measure it? You can easily calculate the break-even by using our break-even point calculator. And it is absolutely free.
Measuring is straightforward, and you need three things—fixed and variable costs and sales price per unit. Just enter the data in our calculator and get the results.
What Is the Break-Even Point?
The break-even point defines a situation when a company’s revenues will be equal to its cost within a designated accounting period. In simple words, we call it ‘broke even—as it means no net losses or profits for that company.
By the break-even point, you will understand when your company or products will start to gain profits. A company running at a loss will have revenues below the BEP, and a company running at a profit will have it above the BEP.
How do you calculate the break-even point?
Break-even point calculation is simple to do. And you can use our break-even point calculator to measure it. There are two ways to do that. The first one, you can measure it on the basis of the unit, and the second one on the basis of dollars.
- The Break-even Point formula in units is— Fixed costs divided by the Sales Price per Unit minus the Variable Cost per Unit.
- The break-even point formula in dollars is— Fixed Costs divided by Contribution Margin.
The contribution Margin is deducting the Variable Cost per Unit from the Price per Unit. Now just dividing the result by the Price per Unit.
- Fixed costs: The fixed costs will not change on sales volume. It includes factors like rent you paid for production facilities, storefronts, software, or computer.
- Variable costs: Variable costs depend on the sales volume, such as materials for manufacturing or the production of items.
- Price per unit: It is a calculation for one of the products for which a company will charge consumers.
- Contribution Margin: This ratio is crucial to determine what you can break even, like raising the prices or reducing the production cost. With the contribution margin, you have to cover the fixed rate. And the rest amount will be your profit.
- Profit earned: The break-even point is reached when variable and fixed costs are equal, and you can make a report of net profit or loss of 0$ based upon it. And the net profit will be selling any item beyond that point.
What is Break-even analysis?
By analyzing the break-even, you can calculate the break-even point. But this is not the end. Once you calculate all the numbers, it may reveal breaking even requires a lot more product sales than you anticipated.
It is the point where you need to understand whether your business plan is based on realistic goals or not. And you need to cut the production costs or raise the selling prices or not.
Moreover, identify the demands of your products in the market. If the break-even point shows you the numbers you have to sell, it does not mean you can sell them.
The right strategy is making a financial report when you plan to start a business. It will help you identify the risk that may arise later and whether you should invest your money in that business or not. And for existing businesses, you need to check this break-even when you want to launch a new product or service on the market and the net profit you can earn from it.
How do you use the Break-Even Point Calculator?
The break-even point calculator is nothing but determining how many units you have to sell to equal the expenses.
By using our free break-even point calculator, you can easily understand the break-even point for any business. And the user can follow two ways for it, which are mentioned in the below section.
Calculating in units
It is dividing the fixed costs by variable costs per unit subtracted from the price per unit.
Calculating in dollars
It is the ratio of fixed costs and contribution margin. You can calculate the contribution margin by deducting the variable costs from the products’ selling price.
Break-Event Point Examples
Let’s assume a company wants to introduce a new shampoo in the market but also wants to know the overall financial impact after launching the item.
So, the company decides to measure the break-even point so that the team can identify whether the investment in that product will be a good decision or not.
So, the costs for the first month of that product,
Calculating in units
The Break-even Point formula in units is— Fixed costs divided by the Sales Price per Unit minus the Variable Cost per Unit.
- Fixed costs = $ 1,000 (for one month)
- Price per unit = $2.50
- Variable costs = 0.60 (per bottle)
Formula: Fixed Costs / (Price per Unit – Variable cost per unit)
$1,000 / ($2.50 – $0.60) = $1,000 / 1.9 = 526 units.
The company has to sell over 526 shampoo bottles in the first month to achieve the break-even point.
Calculating in dollars
The break-even point in dollars is—Fixed Costs / Contribution Margin.
So, the result is — $1000 / 0.76 = $ 1315
In order to break even in the first month, the company needs to sell $1315 worth of shampoo. The amount above that can be considered as the profit for that company.
What is a fixed cost?
These are the expenses you need to deal with for selling or producing a product. It does not rely on the number of products sold or the manufacturing level. Some factors included in fixed costs are rent, taxes, salaries, energy, and labor cost. You can understand that these factors will not change if the production or the selling increases.
What is a variable cost?
The variable costs are determined by the number of products available for sale on the market or the production level. It works on a per-unit basis, which means selling more units means increasing the variable costs. Some common factors are delivery charges, prices of raw materials, and packaging costs.
Why is Break-Event Point Important? Can it help your business?
In order to break even, you must have the same revenues as you are spending. And it means no gain or loss for the business. In short, it has reached the point where the product’s revenue equals its production costs.
Setting the goal and analyzing the plan are the two things you need to know before starting any business. As for the owner, it is not only important to predict the return they can expect from their investments but also the point at which they can identify that return.
The break-even point is a vital part of every new business that investors should analyze. And for existing businesses, BEP helps evaluate the profits and analyze the costs the company can earn at different sales volumes. In addition, it can even act as proof of the potential turnaround after facing any disasters.
Can it help your business?
- As the business owners know when or at which point they can break even, it will be easy to set the budget and do accordingly. It will help to build a realistic target for that business.
- Fixed and variable costs can affect the profit margin of a business. But with the break-even analysis, the company can detect if the effects are changing costs or not.
- During a financial crisis, the sales of any business tend to lower, but with the break-even point, you can deal with this. It will help you decide the least numbers of sales you need to make the profits, and with this report, you can set high business decisions.
Break-Even Point Calculator FAQs
Below are frequently asked questions regarding the break-even point calculator!
Is the Break-Even Point Calculator by eComBusinessHub Free to Use?
Yes, the break-even point calculator is totally free of cost at the eComBusinessHub. By using this calculator, you can study the costs and estimate the price for the products you sell in your e-commerce or dropshipping business.
Is Break-Even Point useful for dropshippers?
Yes, absolutely. Break-even point analysis can help dropshippers determine what sales volume they need to achieve to cover the costs.