Break Even Point Formula and Calculator
Apply the break even point formula to your numbers: break-even units and sales, margin of safety and sales for a target profit.
The break even point formula is: Break-even units = Fixed costs ÷ (Selling price per unit − Variable cost per unit). At this level, sales cover all costs and profit is zero. Every unit sold beyond it adds its contribution to profit.
This calculator applies the break even point formula in two ways. Use unit mode when you sell a product at a set price. Alternatively, use sales mode when you only know variable costs as a share of sales. It shows break-even units, break-even sales, margin of safety and the sales you need for a target profit.
Key takeaways
- Break-even is where total revenue equals total cost.
- Contribution margin = selling price − variable cost per unit.
- Margin of safety shows how much sales can fall before losses.
- A lower break-even point means lower business risk.
How to Use the Break-Even Calculator
- Choose a modePick unit mode or sales mode.
- Enter fixed costsAdd rent, salaries, interest and other fixed costs for the period.
- Enter price and variable costUse per-unit figures, or variable cost as a % of sales.
- Add planned salesEnter expected units to see the margin of safety.
- Set a target profitSee the sales needed to earn that profit.
Break Even Point Formulas
Break-even units = Fixed costs ÷ Contribution per unit
Break-even sales (₹) = Fixed costs ÷ Contribution margin ratio
Margin of safety = (Planned sales − Break-even sales) ÷ Planned sales
Units for target profit = (Fixed costs + Target profit) ÷ Contribution per unit
Fixed vs Variable Costs
| Fixed costs | Variable costs |
|---|---|
| Rent and lease payments | Raw materials |
| Staff salaries | Packing and freight |
| Interest on term loan | Power used in production |
| Depreciation | Sales commission |
| Insurance | Consumables |
However, some costs are semi-variable, such as electricity with a fixed demand charge. Split these into a fixed part and a variable part for a more accurate result.
Break-even point example
A unit has fixed costs of ₹1,50,000 a month. It sells a product at ₹250, and the variable cost is ₹150 per unit. Therefore, contribution is ₹100 per unit. Break-even is 1,50,000 ÷ 100 = 1,500 units, or sales of ₹3,75,000. If the unit sells 2,000 units, the margin of safety is 25%. Furthermore, to earn a target profit of ₹50,000, it needs to sell 2,000 units.
In sales mode, suppose variable costs are 55% of sales. As a result, the contribution margin ratio is 45%, and break-even sales are 1,50,000 ÷ 0.45 = ₹3,33,333.
Break-Even Point in a Project Report
Banks expect a break-even analysis in most project reports. They often express it as a percentage of installed capacity. Consequently, a unit that breaks even at 45% capacity looks safer than one that needs 80%.
Additionally, many reports show a cash break-even, which leaves depreciation out of fixed costs. This tells the bank when the unit stops losing cash, even before it shows an accounting profit.
How to Lower Your Break-Even Point
- Cut fixed costs such as rent, or share premises at the start.
- Negotiate better raw material prices to reduce variable cost.
- Raise prices where the market allows it.
- Focus on products with a higher contribution margin.
Break-even assumes the price and variable cost stay the same at every level of sales. Re-run the calculation when prices or input costs change.
Related Tools
Build a full project report with break-even, DSCR and five-year projections using the project report maker. In addition, check loan repayment with the DSCR calculator, size your bank limit with the working capital loan calculator, and browse business ideas with costs. For the theory behind cost behaviour, see the Institute of Chartered Accountants of India.
Frequently Asked Questions
What is the break even point formula?
Break-even point (units) = Fixed costs ÷ (Selling price per unit − Variable cost per unit). In sales value, it is Fixed costs ÷ Contribution margin ratio.
What is contribution margin?
Contribution margin is the selling price minus the variable cost per unit. It is the amount each unit adds towards fixed costs and then profit.
What is margin of safety?
Margin of safety is how far actual or planned sales can fall before the business reaches break-even. It is (Actual sales − Break-even sales) ÷ Actual sales.
How do I find break-even in sales value?
Divide fixed costs by the contribution margin ratio. For example, if variable costs are 55% of sales, the ratio is 45%, so ₹1,50,000 of fixed costs needs sales of ₹3,33,333.
Why do banks check the break-even point?
A low break-even point means the business turns profitable at modest capacity use. Banks see that as lower repayment risk.
What is a good break-even point for a new unit?
Many project reports aim to break even at around 40% to 60% of installed capacity. A lower figure gives more room if sales start slowly.
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