The Break-Even Point (BEP), also known as the breakeven, cost recovery point, or profit threshold, is where total revenues equal total costs. Beyond this point, a business or project starts generating profit. Break-even analysis is a fundamental tool in business planning and is indispensable for entrepreneurs, product managers, and financial controllers.
The break-even point answers the central question: "How many units do I need to sell to cover my costs?" This information is essential for pricing decisions, investment planning, risk assessment, and business model evaluation.
Enter the following values:
The calculator automatically determines the quantity at which you'll start making profit.
Break-Even Quantity = Fixed Costs / (Selling Price − Variable Costs)
The denominator is called the contribution margin per unit. It shows how much each sold unit contributes toward covering fixed costs. The higher the contribution margin, the faster you reach the break-even point.
Suppose you run an online shop selling handmade candles:
Initial Situation:
Monthly Fixed Costs: $2,000 (warehouse rent, website, insurance)
Variable Costs per Candle: $5 (wax, wick, packaging, shipping)
Selling Price per Candle: $25
Calculation:
Contribution Margin: $25 − $5 = $20 per candle
Break-Even: $2,000 / $20 = 100 candles per month
Interpretation: Starting from the 101st candle sold, the shop makes profit!
A high break-even point means higher business risk since you need to sell more units before becoming profitable. Improvement strategies: reduce fixed costs (e.g., cheaper premises), increase selling price (if the market allows), reduce variable costs (better supplier terms), or improve productivity.
For a product portfolio, calculate the weighted average contribution margin based on your planned product mix. Alternatively, determine break-even in revenue rather than units: Break-Even Revenue = Fixed Costs / Contribution Margin Ratio.
Fixed costs stay constant: rent, salaries, insurance, depreciation, software licenses. Variable costs increase with volume: material costs, shipping, packaging, commissions, production energy costs. Some costs are mixed (e.g., electricity with base fee + usage).
Ideally with every significant change: price adjustments, new supplier contracts, rent increases, hiring new employees, launching new products, or during annual budget planning.