![]() It can be based on sales or the number of units.īreak-Even Point (Units)= Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit).įixed costs are expenses that do not change irrespective of the number of units sold. There are more than a few ways to calculate your break-even point. Increase of price or volume of sales to make up for the increase in fixed costs.Impact of reducing price/volume of sales.Number of units to sell before earning profitability. ![]() Point of declining sales where business starts to incur a loss.Profitability of current products/services.Additionally, calculating the break-even point is critical in identifying critical sales drivers, whether it is the volume of sales, average production cost, or sales price.īu understanding your break-even point, you can identify: ![]() Knowing what the break-even point for your business is will help you in deciding costs, allocating sales budgets, and preparing business plans. If a business is making a lot of money, it does not necessarily mean that it is running profitably. Why is calculating the break-even point is important? Variable costs include raw materials, packaging, transportation, and other expenses related to production. Variable costs are expenses that directly relate to the volume of production. These costs are free from production and must be incurred even in the absence of production. Fixed costs include rent, salaries, taxes, interests, labour, depreciation and other operational costs. There are two components of the break-even analysis:įixed costs are costs that are determined when an idea goes into the production stage and depends on the level of production. To put it in layman’s terms, the point where you finally recover all the capital costs borne to set up the business. The Break-even point is the point where your total expenses match the total revenue, a point without any profit or loss, i.e. To determine the profitability of one’s business, it is important to calculate the break-even point.
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