Break-Even Point Formula
Calculate the break-even point with BEP = Fixed Costs / (Price - Variable Cost).
Find how many units you need to sell to cover all costs.
The Formula
The break-even point tells you exactly how many units you need to sell to cover all your costs. Below this number, you lose money. Above it, you make profit.
Variables
| Symbol | Meaning |
|---|---|
| BEP | Break-even point (number of units) |
| Fixed Costs | Costs that stay the same regardless of sales (rent, salaries, insurance) |
| Selling Price per Unit | How much you charge for each unit |
| Variable Cost per Unit | Cost to produce or acquire each unit (materials, labor per item) |
Example 1
A candle maker has $6,000 in monthly fixed costs. Each candle sells for $25 and costs $10 to make.
Fixed Costs = $6,000, Price = $25, Variable Cost = $10
BEP = 6000 / (25 - 10)
BEP = 6000 / 15
BEP = 400 candles — They must sell 400 candles per month to break even.
Example 2
A food truck has $3,200 in monthly fixed costs. Each meal sells for $12 and costs $4.50 to prepare.
Fixed Costs = $3,200, Price = $12, Variable Cost = $4.50
BEP = 3200 / (12 - 4.50)
BEP = 3200 / 7.50
BEP = 427 meals — They need to sell 427 meals per month to cover all costs.
When to Use It
Use the break-even point formula when:
- Launching a new product and need to know your sales target
- Setting prices and want to understand the impact on profitability
- Evaluating whether a business idea is financially viable
- Deciding between different production methods with different cost structures
Key Notes
- Formula: BEP (units) = Fixed Costs / (Price − Variable Cost per Unit): The denominator (Price − VC) is the contribution margin per unit — how much each sale contributes toward covering fixed costs. Once BEP is reached, each additional unit sold is pure profit.
- Break-even in revenue: BEP_revenue = Fixed Costs / CM_ratio: The contribution margin ratio = (Price − VC) / Price. For example, if CM ratio = 40%, every $1 of revenue contributes $0.40 toward fixed costs. BEP_revenue = FC / 0.40.
- Margin of safety: actual sales − break-even sales: Expressed in units or as a percentage of actual sales. A margin of safety of 20% means sales can fall 20% before losses begin. Higher margin of safety = lower financial risk.
- Operating leverage — fixed-cost amplification: Businesses with high fixed costs (airlines, manufacturers) have high operating leverage. Above BEP, each additional sale produces more profit than a low-fixed-cost business. Below BEP, losses accumulate faster. Leverage amplifies both gains and losses.
- Applications: Break-even analysis is used in new product launch viability assessment, pricing decisions, capacity planning, make-vs-buy decisions, restaurant menu pricing, and determining minimum sales targets for new ventures or product lines.