Break-Even Point Formula
Calculate the break-even point with BEP = Fixed Costs / (Price - Variable Cost).
Find how many units you need to sell to cover all costs.
The Formula
The break-even point tells you exactly how many units you need to sell to cover all your costs. Below this number, you lose money. Above it, you make profit.
Variables
| Symbol | Meaning |
|---|---|
| BEP | Break-even point (number of units) |
| Fixed Costs | Costs that stay the same regardless of sales (rent, salaries, insurance) |
| Selling Price per Unit | How much you charge for each unit |
| Variable Cost per Unit | Cost to produce or acquire each unit (materials, labor per item) |
Example 1
A candle maker has $6,000 in monthly fixed costs. Each candle sells for $25 and costs $10 to make.
Fixed Costs = $6,000, Price = $25, Variable Cost = $10
BEP = 6000 / (25 - 10)
BEP = 6000 / 15
BEP = 400 candles — They must sell 400 candles per month to break even.
Example 2
A food truck has $3,200 in monthly fixed costs. Each meal sells for $12 and costs $4.50 to prepare.
Fixed Costs = $3,200, Price = $12, Variable Cost = $4.50
BEP = 3200 / (12 - 4.50)
BEP = 3200 / 7.50
BEP = 427 meals — They need to sell 427 meals per month to cover all costs.
When to Use It
Use the break-even point formula when:
- Launching a new product and need to know your sales target
- Setting prices and want to understand the impact on profitability
- Evaluating whether a business idea is financially viable
- Deciding between different production methods with different cost structures