It costs Shane £5 to produce a crate of eight beers – This is the unit variable cost.Meet Shane, Shane runs a craft beer business called BeerX: Here's a good example of finding the break-even point. Using the calculations above, you can accurately understand how much revenue you need to cover your business' costs.
BREAK EVEN POINT FORMULA EXAMPLE HOW TO
(Unit sale price – Unit variable cost) × Unit sales = Total fixed costs How to calculate your break-even point: A business example (Unit sale price × Unit sales) – (Unit variable cost × Unit sales) = Total fixed costs
Unit sales per month = Total fixed costs ÷ (Unit sale price – Unit variable cost) If there are elements of this equation that you don't know, for instance you're not sure of your total fixed costs, or perhaps you're a new business trying to calculate unit sales, use the following equations first: Unit sale price × Unit sales = Total monthly fixed costs + (Unit variable cost × Unit sales) The formula to calculate break-even point is: You will break even when your total revenue per month = total costs per month. How much business you have to generate, either number of products or units of service, in a given time to break even can be calculated using the equation below. Formula for calculating your break-even point You then need to build in your projections of how many products you will sell, or how much demand you will have for your service, per month.īy comparing your projected monthly revenues against your total monthly costs, you should be able to come up with a point at which you start to move into profit, that is, your break-even point.Ĭalculating the break-even point will give you an excellent idea of the costs involved in your business and the level of sales you will need to generate to cover your costs, which in turn will affect your overall business strategy. as well as variable costs (costs which will vary depending on how much you sell, such as manufacturing costs, freelance costs, etc). ?Total fixed costs = Your business expenses that are fixed this could include your monthly office rent, staff salaries, product leases etc.īefore you can calculate your break-even point you need to determine your start-up costs and monthly running costs, taking into account any fixed costs, such as repayments on loans, salaries, etc. This is a variable because it will change depending on how much you sell. ?Unit variable cost = The amount it costs your business to produce/create the product or service. ?Unit sales price = The amount your business is charging for a product or service. ✅Break-even point = The point at which your revenue is equal to your total costs. In other words, you need to work out exactly how much you will need to sell each month, and at what price, to break even. Once you reach this point, any additional income generated each month is profit.Įstimating as accurately as you can when you will reach this point is an expected part of your business plan. Your break-even point is the point at which your business is producing enough revenue each month to cover all your fixed and variable costs.
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