# 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 pound 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

## 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.

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