Now that you know when to use which break-even formula, let’s take a closer look at its single components. So be sure to update and monitor it regularly. In other words, your contribution margin might vary from month to month, especially when you’re selling multiple products at the same time. That’s because it takes into account your variable costs. Variable costs vary depending on the number of sales you generate.īreak-Even Point (Units) = Fixed Costs ÷ (Revenue Per Unit – Variable Costs Per Unit)īefore you jump right into calculating the BEP of your products you should be aware that your contribution margin might change over time. Method 1 – Calculating the Break-Even Point Based on Units (Volume)ĭivide the fixed costs by the revenue per unit minus the variable costs per unit.įixed costs do not change, no matter how many units you sell of a certain product. The second is based on how much revenue you need to generate in order to break-even. The first is based on the number of units you need to sell to cover all your costs.

More specifically, there are two ways to calculate the break-even point: The basic break-even formula is defined as follows:īreak-Even Point = Fixed Costs ÷ (Average Price – Variable Costs) Both have a positive effect on your profit margins. With this knowledge, you can either try to decrease the costs along your supply chain or change the average price you sell your products for. The key advantage of calculating the break-even point is that it enables you to determine the profitability of your business. It Determines Your Profitabilityīefore we finally turn our eyes on the break-even formula, you should remember one thing: On the other hand, if you’re selling goods with low production costs and want to increase the number of sales, value pricing might be the strategy to go with. And knowing the BEP will help you to decide which one will best support your profit targets.įor example, if you sell products with high-cost components, a premium pricing strategy might be the one to go with. There are many types of pricing strategies sellers can choose from. Now that you know your obvious and not so obvious occurring costs, the price of your products is another factor that determines your profitability. It Helps you to Identify the Right Pricing Strategy for Your Business Running this analysis will force you to consider all the cost components that exist when selling products online.Įven the ones you might not think about right away, e.g., costs of customer returns, variable shipping costs, etc. It gives investors insight into when a company is expected to offset its costs for the first time. The break-even analysis is a core part of any business plan. Let’s take a closer look at each of them: 1. It’s a reliable method to determine your profitability levels.It allows you to identify the right pricing strategy for your products.It uncovers hidden or overlooked cost components along your value chain.The three main benefits of calculating the break-even point are: The break-even analysis helps you to understand the financial health of your business.Īnd as a result, you can take control of the elements that hinder you to break-even and also find ways to increase your profit margins. There are many benefits to knowing the point of break-even.įirst, it tells you exactly how many times you need to sell a product to offset the running costs of your business.

Why Should You Perform a Break-Even Analysis? Which level you use really depends on whether you just want to understand the profitability of a single product or your entire business.

on product level, i.e., the point from which a single product turns profitable.on company level, i.e., defining the point of break-even for your overall business, or.To identify the BEP of your business, you need to perform a break-even analysis. The break-even is the point where no losses or gains are generated. In other words, the costs “break-even” with the sales of a product. Simply put, the break-even point (BEP) describes the moment from which the incoming revenue of your company equals its costs.Īt this point, your business generates neither a loss nor a profit. Why you Should Perform a Break-Even Analysisĭefinition: What is the Break-Even Point?įirst, let’s define what the break-even point is.In a hurry? Skip to the break-even formula right away by clicking this link. So if you want to fully understand the break-even formula, you’ll get a ton of value from today’s guide. In fact, I will show you exactly how to calculate the break-even point, the moment at which your business starts to turn a profit. Today, you’re going to learn everything you need to know about profitable online sales.

Overall break even point formula