How to Calculate the Breakeven Point
The breakeven point is a crucial financial metric for any business, indicating the point at which total costs and total revenue are equal, meaning there is no net loss or gain. Understanding your breakeven point helps in setting prices, managing costs, and determining sales targets.
The Breakeven Point Formula
The calculation is based on your fixed costs, variable costs, and selling price:
- Identify Fixed Costs: These are costs that do not change with the number of units produced, such as rent, salaries, and insurance.
- Identify Variable Cost Per Unit: These are the costs that change directly with the number of units produced, such as raw materials and direct labor.
- Determine Selling Price Per Unit: This is the price at which you sell a single unit of your product or service.
The formula to calculate the breakeven point in units is: Breakeven Point (Units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). The denominator (Selling Price - Variable Cost) is known as the contribution margin per unit.
Our calculator simplifies this formula, giving you a clear and immediate understanding of your business's financial hurdles and paving the way for profitable decision-making.