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.

There are two break-even formulas. One calculates the value of sales (revenue) required to break even, while another calculates the number of sales (volume) required.

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.

Two 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.
• 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.

Revenue break-even point formula

Where:

• Break even point (revenue) is the dollar value of sales required to reach profitability
• Fixed costs are 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 is what you charge for your goods or services

Volume break-even point formula

Example break-even calculations

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 has fixed monthly costs of $6,000 for rent, utilities, insurance and advertising. Their variable costs are $2 per bottle for packaging, ingredients and labour. They sell their product for $7 per bottle.

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

= $6,000 / 1 – ($2 / $7)

= $6,000 / (1 - 0.286)

= $6,000 / 0.714

= $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)

= $6,000 / $5

= 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 has fixed monthly costs of $2,700 for utilities, hardware leases, software subscriptions, and advertising. Their variable costs are $35 per hour to hire a contractor. Clients are charged $75 per hour.

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

= $2,700 / 1 – ($35 / $75)

= $2,700 / (1 - 0.467)

= $2,700 / 0.533

= $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)

= $2,700 / $40

= 67.5

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

See related terms

Fixed cost

Variable cost

Profitability

More terms