Break-Even Point Calculator
Break-Even Introduction
Easily calculate your break-even point (BEP). Also calculates fixed, variable, and component costs as a percentage of sales.
- For either service or product-based businesses.
- Analyze fixed, variable, and component costs as a percentage of break-even.
How many units or how much time do you need to sell to break even?
The break-even point (BEP) is:
The point at which the income from the sale of a product or service equals the invested costs, resulting in neither profit nor loss; the stage at which income equals expenditure (from Dictionary.com).
How many units (or how much time) do I need to sell to break even?
The answer can be involved. Use a break-even point calculator. It will calculate the number of units you need to sell to reach the break-even point (BEP).
If you are a consultant who bills for services by the day or hour, the BEP calculator will tell you how many days or hours you must bill each month for your business to reach its break-even point.
If you are a house painter and your average price for painting a house is $7,000, a break-even analysis will calculate how many homes you must paint each month to cover your costs.
Below the calculator you will find examples of how to calculate your break-even point. More below…
The Calculator-Calculate your break-even point
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Information
Break-Even Point Analysis
Selling Price
Remember, the break-even point is the number of units you must sell so that your business has neither a profit nor a loss.
The key point is to define what a unit is.
If you sell a service and want the BEP shown as the number of hours you must bill each month to break even, enter your hourly rate. If you want the BEP shown as the number of days, enter your daily rate.
Or, if you are an Uber driver and want to know your break-even point, calculate your average price per trip and enter it. In that case, your BEP is the average number of trips you must make.
Alternatively, you may enter your average income per day. Then your BEP will be the number of days you need to drive.
Fixed Costs Explained
Fixed costs are items that do not change over time. Rent is a common example. If you lease a building or a vehicle, you must make the periodic lease payments regardless of business conditions. A business cannot eliminate a fixed cost even when conditions change.
One business’s fixed cost could be another business’s variable cost. If your company pays an accountant under a monthly retainer, treat the retainer as a fixed cost.
Another firm may pay an accountant only as needed. For that firm, accounting services would be a variable cost.
Variable Costs Explained
Variable costs are items that change over time and are not required. Advertising is a typical example. Advertising can increase or decrease, or the business may eliminate it from one period to the next.
As with fixed costs, one business’s variable cost could be another business’s fixed cost. If your company has a twelve-month contract for local newspaper advertising, you may want to treat advertising as a fixed cost.
Component Costs Explained
If your business sells a product, enter the cost of the components that go into making the product. Enter component costs consistently relative to the unit selling price. Imagine you sell hot dogs and want to know how many you must sell to reach your BEP. You buy rolls in packages of twelve and hot dogs in boxes of forty-eight. Do not enter the package totals. Instead, enter the cost of one roll and one hot dog.
The BEP (Units to Break Even)
The BEP is the number of units you must sell for a deal or business to break even.
What is a unit?
A unit corresponds to what you entered for the “selling price per unit.”
If you are an Uber driver and you enter the average price per trip as the selling price per unit, your BEP is the number of trips you must make.
If you enter your average income per day, then the BEP is the number of days you must drive to break even.
If you enter the average price per trip but enter expenses as weekly amounts, your BEP is the number of trips you must make per week.
The meaning of the break-even analysis depends on how you entered the numbers.
A benefit of this calculator is that you can easily save your work. From time to time, you can adjust the numbers and rerun your break-even analysis.
Calculating the Break-Even Point for a Service Business
Jill is an interior design consultant. She has set her hourly rate at $85. How many hours must she work each month to break even?
Because Jill wants to know how many hours she needs to bill each month, she will enter all expenses as monthly expenses.
- Jill has one thing to sell — her time. Since her hourly rate is $85, on the “Selling Price” tab, enter $85.00.
- “Fixed costs” are costs that do not vary from period to period. For now, Jill has three fixed costs: office space rent of $1,800 per month, health insurance of $650 per month, and liability insurance of $1,200 per year. Therefore, on the “Fixed Costs” tab, enter the description “office space” with $1,800, “health insurance” with $650, and “liability insurance” with $100 (annual premium of $1,200 divided by 12 months).
Notice how the calculator automatically updates the cumulative cost total.
- “Variable costs” are costs that change from month to month. Variable costs are typically telephone and advertising expenses. When entering variable costs, you can enter the expected average costs per month. In Jill’s case, she will enter $150 for her phone and $300 for advertising. Usually, there will be other fixed and variable costs to enter. For now, we will enter only these.
- If Jill were selling a product, she would enter component costs or product costs. Because Jill is selling a consulting service and not a product, she can skip this step. (See below under Notes for details about a product-based company.)
- At this point, Jill has entered all the data needed to calculate her break-even point. The result is that Jill must invoice (and be paid for) 35.3 hours per month to break even.
TIP: Do not worry about whether a particular cost is fixed or variable. Changing the classification of an individual cost will not change the break-even point. The purpose of classifying costs as fixed or variable is to understand where costs may be reduced to adjust your BEP.
The difference between a business that sells a service and one that manufactures or resells a product is that a manufacturer or reseller has component costs. A service business does not.
Rachel says:
Como sacan el BEP del ejemplo de Jill, por que de acuerdo a mis cálculos este sale -6.99
Karl says:
Verifiqué dos veces y la ilustración de Jill es correcta. Su BEP es negativo, y ese no puede ser el caso.
Diga sus entradas a un archivo y envíeme el archivo por correo electrónico (dirección de correo electrónico en la página de contacto) y lo echaré un vistazo.
I doubled checked and the illustration for Jill is correct. Your BEP is negative, and that can’t bee the case.
Please say your inputs to a file and email me the file (email address on the contact page) and I’ll take a look.