How to Calculate a Business Break-Even Point Including calculcations. Very important to know if your business is making money or not.

1. Business Break Even Point
How to Calculate Break Even Point of a Business

2. Business
Break-Even
Point
Objectives
Introduction
Definition and Reason for calculation of Break-Even Point
Formula for Break-even Point
How to Use Break-Even Point to Plan Business Goals
Conclusion
Questions & Answers

3. Introduction
The Breakeven Point
A company's breakeven point is the point at which its sales exactly cover its expenses.
The calculation for the break-even point can be done one of two ways:
• One is to determine the amount of units that need to be sold
• Two is the amount of sales, in dollars, that need to happen.

4. Reason for Calculating Break Even Point
1. The break-even point allows a company to know when it, or one of its products,
will start to be profitable.
2. The calculation should be used when projecting the sale price of an item to be sold
that includes all expected expenses of a business including initial acquisition price
of item (s) purchased to be sold.
3. TO project future income potential if certain sales amounts are reached.
If a business’s revenue is below the break-even point. Then, the company is operating
at a loss.
If it’s above, then it’s operating at a profit.

5. Formulas for Calculating Break-Even Point.
 Calculating by Units to be Sold:
 BREAK-EVEN POINT (UNITS)
 FIXED COSTS ÷ (SALES PRICE PER UNIT – VARIABLE COSTS PER UNIT)
 FIXED COSTS ARE: RENT, UTILITIES, AND OTHER COSTS THAT MAY CHANGE
SLIGHTLY.
 SALES PRICE PER UNIT: AMOUNT OF MONEY TO BE SET TO SELL A PRODUCT.
 VARIABLE COSTS PER UNIT: COSTS THAT CHANGE IN MANUFACTURING OR
PRODUCING A PRODUCT SUCH AS SALARIES, MATERIALS OR INITIAL PURCHASE
PRICE OF A PRODUCT FOR RESELLING.
 Total variable costs ÷ Total units produced

6. BREAK-EVEN POINT (SALES DOLLARS)
 Formula to Determine Sales Dollars needed to break even.
 Fixed Costs ÷ Contribution Margin
Fixed Costs examples as mentioned prior rent, utilities etc.
Contribution Margin: is the difference between the price of a product and
what it costs to make that product.
The calculation is as follows:
(Sale price per unit – Variable costs per unit)/Sale price per unit

7. BREAK-EVEN POINT (SALES DOLLARS)
 Fixed Costs ÷ Contribution Margin (Sales price per unit – Variable costs per unit,
with resulting figure then divided by sales price per unit)
$2000/.7333
=$2727
 Andy’s team needs to sell $2727 worth Andy’s Energy Drink in a month to break
even. Anything after that amount will be profit.
 To confirm this figure: you can take the 1818 units from the first calculation, and
multiply that by the $1.50 sales price, to get the $2727 amount.

8. Business Example for Break-Even Point for
Units to be Sold.
 Andy’s Energy Drink: is an energy drink manufacturer in the L.A area.
He is considering introducing a new energy drink and to determine the number of units (items) that
have to be sold in a month to break even.
 Projected costs for the first month in production:
 Fixed Costs = $2,000 (total, for the month)
 Variable Costs = .40 (per can produced)
 Sales Price = $1.50 (a can)
 Calculating using above figures:
 Fixed Costs ÷ (Sales price per unit – Variable costs per unit)
$2000/($1.50 – $.40)
 ^
Or $2000/1.10=1,818 units
 Mr. Andy needs to sell 1,818 units to break even.

9. Conclusion
Break-Even Point calculations for a business are very important for determining
amount of units that need to be sold to meet the fixed expenses of a business. NO
profit or loss calculation.
There are two methods for calculating a Break-Even Point:
BREAK-EVEN POINT (UNITS):FIXED COSTS ÷ (SALES PRICE PER UNIT – VARIABLE
COSTS PER UNIT) Total variable costs ÷ Total units produced to break even.
Break-Even Point (Sales): (Sale price per unit – Variable costs per unit)/Sale price per
unit. Total sales units to be sold to break even.
Use calculation one to determine new price points for a product you want to sell in
order to make a profit.
Use Calculation two determine the amount of sales your business is required to
generate in order to start making a profit.

10. Questions & Answers