Understanding your break-even point helps you determine the minimum sales needed to cover your costs. Once you pass this level, your business starts to make a profit. Break-even analysis is simple, but extremely useful for pricing, planning and decision-making.
What is Breakeven Point?
The breakeven point is the level of sales at which a business’s total revenue equals its total costs, resulting in neither a profit nor a loss. In other words, it is the point where the money coming in from sales exactly equals the money going out to cover all fixed and variable costs.
Understanding your breakeven point is essential for running a successful business. It tells you the minimum amount you need to sell just to cover your costs. Once you pass this point, every additional unit sold starts to generate a profit.
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How to Calculate Break-Even Point
To calculate your breakeven point, you need to know two key figures: your fixed costs and your contribution margin per unit. Fixed costs are expenses that remain the same regardless of how much you produce or sell — such as rent, salaries, and insurance. The contribution margin is the selling price per unit minus the variable cost per unit.
The breakeven point can be expressed in two ways — in units (how many items you need to sell) or in revenue (the total sales value needed). Both formulas use your fixed costs and contribution margin as the starting point.
If your business is not reaching its breakeven point, it is worth reviewing the key drivers and seeing where changes can be made, including:
- Can I reduce the fixed costs and variable costs of the business?
- Are sales prices too low?
- Is the business viable?
- Can I increase the production level?
In the article, we have included charts and examples to help make it simple to understand. There is also a free Excel template for entering your figures, which includes a chart.
Break-Even Point Formula
The image below shows the break-even point formula: fixed costs divided by the sales price minus variable costs. The sales price less the variable costs is also called the contribution margin.
The calculation will determine the point of sale at which the company breaks even.
Break-Even Point Example
ABC Computers has calculated its fixed costs to 21,000; they sell a computer for 700.00; the variable cost to produce each computer is 400.00 price per unit. The calculation is as follows:
21,000 fixed costs / (700 sales price – 400 variable cost per unit) =
21,000 / 300 = 70 units
70 units have a sales value of 700.00 each; therefore, the business’s break-even point is:
70 units * 700.00 = 49,000
The image below shows the figures and results.
ABC Computers struggles to reach its break-even point; they look at what will happen if they reduce their fixed costs or increase the selling price.
They have sourced new premises and reduced the fixed costs to 18,000 by lowering both the rent and rates.
18,000 / 300 = 60 units
The second option is to stay in their premises, but increase the sale price to 750.00
21,000 / (750-400) =
21,000 / 350 = 60 units
As you can see from the scenarios above, the breakeven point will be the same. There are advantages and disadvantages to both changes. If the business moves, there will be moving costs, and existing customers may not visit. If they raise the sales price, they may lose sales to competitors.
Advantages of Break-Even Analysis
Break-even analysis is a very important tool for any small business owner. This is because break-even analysis can help you understand your business’s financial situation and make informed decisions to improve it. Break-even analysis involves calculating your business’s break-even point, the level at which your business covers its costs.
This information can be very useful for setting prices, making investment decisions, and planning for the future. Break-even analysis can also help you identify areas where your business is not performing as well as it could be, so you can take steps to improve.
Here is a quick list of advantages:
- Confirms financial situation
- Help make informed business decisions
- Useful for setting prices
- Can help identify areas of improvement
Disadvantages of Break-Even Analysis
While break-even analysis is a useful planning tool, it does have limitations. It works best as a guide alongside other financial information, rather than as a standalone decision-making tool.
Here is a quick list of disadvantages:
- Assumes costs and prices are fixed
- Only works for a single product or service
- Ignores changes in demand
- Does not account for external factors
- Based on estimates, not guaranteed results
Break-Even in Revenue (£)
Some businesses find it more useful to calculate the break-even point in sales value rather than units. This is especially helpful for:
- Service-based businesses
- Businesses with variable pricing
- Retailers selling a mix of products
- Anyone who thinks in terms of turnover rather than units
Break-even in revenue tells you how much money you must bring in to cover all your costs.
How to Calculate Break-Even in Revenue
To work out break-even revenue, follow these two simple steps:
- Calculate break-even units = Fixed costs / (selling price – variable cost)
- Convert that into sales value = Break-even units x selling price
This turns your break-even point into a clear financial target.
Example
Using the product example:
- Break-even units = 1,000
- Selling price = £40
Break-even revenue = 1,000 × £40 = £40,000
This means the business needs £40,000 in sales to break even.
Example for a Service Business
If you normally quote in revenue rather than hours:
- Fixed costs: £18,000
- Hourly rate: £50
- Variable cost per hour: £8
- Contribution per hour = £42
- Break-even hours = £18,000 ÷ £42 ≈ 429 hours
- Revenue = 429 × £50 ≈ £21,450
Your break-even point is £21,450 of billable income.
Excel Break-Even Point Template
We have created a break-even point template for units in Excel, available for free download. The template includes a table to enter your figures, a results table, and a line chart, enabling you to visualise the results. It will save you from having to create your own spreadsheet.
Instructions for Break-Even Template
- Download the template available at the end of this page.
- The figures already entered are from the above example.
- Enter the units – this will depend on the quantities you sell. Some businesses may only sell a few products for which you will require 1 or 10. For a company selling larger quantities, 100 or even 1000 is more suitable.
- Enter the total fixed costs – Includes rent, salaries, insurance and depreciation
- Enter the total variable costs – including materials, direct labour, sales commission and delivery charges.
After posting the figures above, the following calculations take place.
- Contribution margin – the sales prices less variable costs
- Break-even points in units – how many production or sales volume units
- Break-even point in value (it can be any denomination)
The table will update, showing the profit or loss for each of the units. Below is the template using the figures from our example.
The break-even chart will also be updated to show the break-even point visually.
Break-Even Point Template Download
By downloading our free templates, you agree to our licence agreement, allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way.
What is the break-even point (BEP)?
It is the level of sales (units or revenue) where the total income equals the total costs
Can I use BEP if I sell more than one product or service?
Yes — but you’ll need to calculate separate BEPs for each product/service
Why is the break-even point important?
The break-even point is crucial because it indicates the minimum level of sales required to avoid a loss. It helps you to set prices, spot risks early, and plan how many units or hours you need to work.
Further Reading
Last updated June 2026
