Starting a business? This break-even calculator allows you to perform a task crucial to any entrepreneurial endeavor. The goal of a break-even analysis is to let you know how many units of goods you need to sell in order to cover all of your outgoing costs (cost of goods sold and other, fixed costs that are not tied to the quantity of inventory). Please go ahead and use the calculator, we hope it's fairly straightforward. If you'd rather calculate it manually, we have described how to calculate break-even point below, and even explained what is the break-even point formula.
How to calculate break-even point
- Find out how much you make on every unit. For example, if you buy for
$30and sell for
$45, your gross profit per item is
$15(let's assume you don't have other per-unit costs).
- Identify your fixed costs. In our example, we'll spend
$2700(office rent, utilities, etc.)
- Divide your fixed costs by the profit you make on every unit -
$2700 / $15 = 180- this is how many units you need to sell.
- The overall sales figure is easy:
180 * $45 = $8100.
- Your done!.. or use our break-even calculator :-)
The manual break-even analysis is super easy once you realize that you simply need to balance fixed costs with gross profit. Let's go you through the whole process:
- The general equation is
fixed_costs = per_unit_profit * number_of_units
- Let's expand the profit. It's comprised of costs and revenue:
fixed_costs = (per_unit_revenue - per_unit_costs) * number_of_units
- We need to sell
number_of_units = fixed_costs / (per_unit_revenue - per_unit_costs)
- We need to talk in terms of dollars brought in, so this changes the break-even point formula to:
total_revenue = per_unit_revenue * fixed_costs / (per_unit_revenue - per_unit_costs)
Depending on your needs, you may need to calculate your profit margin or markup to find your revenue... or even the other way around. This will allow you to calculate the maximum price you may pay for goods, given all of your other numbers.
Break-even analysis is often confused with payback time. The latter is a similar calculation, but it's based around knowing how much you bring in over a certain period of time. It might be a good idea to come back to break-even calculator after you actually start doing business. Often times you will find the need to adjust your costs and factor in things you overlooked before.
As with most business calculations, it's quite common that different people have different needs. For example, your break-even point formula might need to be accommodate costs that work in a different way (you get a bulk discount or fixed costs jump at certain intervals).
Also, remember that this analysis doesn't take into consideration the present vs. future value of your funds. See the time value of money calculator for more information about this topic.