In short
- It is the sales volume above which you stop losing money.
- It depends on three figures: fixed costs, price and variable cost per unit.
- A small price rise or a lower variable cost can bring it down a lot.
What it is
The break-even point is the amount you need to sell in a period to cover all your costs. Below it you lose money; above it, every sale makes a profit.
How to calculate it
You need three figures for the same period (for example, one month):
- Fixed costs: what you pay whether you sell or not (rent, salaries, insurance…).
- Selling price per unit.
- Variable cost per unit: what each unit sold costs you.
The difference between price and variable cost is each unit's contribution. Divide fixed costs by the contribution and round up: that is your break-even point.
A worked example
| Monthly fixed costs | €3,000 |
| Price · variable cost | €50 · €30 |
| Contribution per unit | €20 |
| Break-even point | 150 units (€7,500 in sales) |
If you also want to earn €1,000 a month, add it to your fixed costs: you would need 200 units.
How to use it to decide
The break-even point is very sensitive to contribution. In the example, if the variable cost rises by just €1 (from €30 to €31), you need 158 units instead of 150. Before accepting a discount or a cost increase, check how much it moves your break-even point.
Work it out with your figures
The calculator gives you the units, the sales needed and a table of profit at different volumes.