How to calculate break-even point

Break-even point formula (calculation)

Break-even point is business costs divided by sales prices. The results show what level of sales are needed for a business to become profitable.

To calculate the break-even point, you can use two formulas:

• Revenue break-even formula: Calculates the total value of sales (revenue) required to break even.
• Volume break-even formula: Determines the number of sales (volume) required to cover costs.

What is the break-even point?

Break-even point shows when a business can successfully cover its costs. It’s a big milestone because that’s the point at which a business becomes profitable. These calculations are often used to help set baseline productivity and sales targets..

Revenue break-even point formula

Revenue break-even formula is easier to calculate. It gives you a monetary figure that you need to beat to be profitable.

Where:

• Break even point (revenue) is the dollar value of sales required to reach profitability
• Fixed costs: expenses that stay the same no matter how much business you’re doing. They include things like rent, insurance, and so on
• Variable costs: are expenses that change with production volume. They include things like raw materials, or hourly wages
• Selling price: what you charge for your goods or services

Volume break-even point formula

Volume break-even formula tells you how much work you need to do to break even. It’s a simple calculation for businesses that sell one type of product, or service businesses that have a single hourly rate. But it gets tricky if you sell lots of things at different prices.

Examples of calculating the break-even point

Check out these break-even calculation examples for product-based and service-based businesses. The revenue and volume break-even point is shown for each.

Break-even example for a product-based business

A kombucha brewery:

• Fixed costs: $6,000 per month (e.g., rent, utilities, advertising)
• Variable costs: $2 per bottle (packaging, ingredients, labour)
• Selling price: $7 per bottle

Revenue required = Fixed Costs / 1 – (Variable Costs / Selling Price)

$6,000 / 1 – ($2 / $7)

= $8,403

To break even, the kombucha brewery must bring in $8,403 monthly.

Volume required = Fixed Costs / (Selling Price – Variable Costs)

$6,000 / ($7 - $2)

= 1,200

To break even, the kombucha brewery must sell 1,200 bottles monthly.

Break-even example for a service-based business

A graphic designer:

• Fixed costs: $2,700 per month (e.g., subscriptions, utilities, advertising)
• Variable costs: $35/hour (contractor fees)
• Selling price: $75/hour

Revenue required = Fixed Costs / 1 – (Variable Costs / Selling Price)

$2,700 / 1 – ($35 / $75)

= $5,064

To break even, the graphic designer must earn $5,064 monthly.

Volume required = Fixed Costs / (Selling Price – Variable Costs)

$2,700 / ($75 - $35)

= 67.5

To break even, the graphic designer must bill 67.5 hours monthly.

See related terms

Fixed cost

Variable cost

Profitability

More terms