![]() ![]() Subtract variable costs from total profit in dollars, then divide the fixed costs by this figure. S ales price per unit – variable cost per unit = net profitį ixed cost per unit/net profit per unit = break-even point by unit Break-even point in sales dollars Then divide the fixed costs by this figure. Subtract the variable costs per unit from the sales price per unit to get the net profit. How to calculate the break-even pointīusiness owners can calculate the break-even point by unit or sales dollar using these formulas and figures from your point of sale reporting: Break-even point in units The revenue per unit is an expression of how much revenue the business earns from selling a single unit of product or service. The contribution margin, or the gross margin, is the money left over after you subtract all variable costs from total sales. Variable costs also include things like the cost of your products or inventory, which can fluctuate based on supplier. ![]() ![]() Business utilities, such as heat and electricity, fall under variable costs due to factors outside of your control, such as colder weather or shorter day length. These are costs that fluctuate from month to month. For an eCommerce business, the website is a fixed cost because you pay a set price for web hosting. For example, your rent is a fixed cost for the duration of the lease term. These are all the fixed or unchanging costs of your business. It involves gathering data on your business and crunching the numbers using a specific formula.īefore you can calculate the break-even point, you will need these numbers: Fixed costs Knowing how to do break-even analysis is a bit more complicated, but it isn’t that time-consuming. The break-even point is easy to understand. If you earn $10,000 a month, you have officially broken even. If you bring in $12,000 a month, your business is operating at a profit of $2,000. If you bring in $8,000 a month, your business is operating at a loss of $2,000. Say you spend $10,000 a month on rent, products, and employee wages. Your business is not yet profitable, but it’s not running at a loss. Essentially, your total costs and total revenue are equal. The break-even point in business is when you are making enough money to cover your expenses. This guide explains how to calculate the break-even point and what it can communicate about your business’s health.
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