![]() How to calculate? Formula – break even point In simple words, you have to look at the costs that remain the same every month (for example, renting an office) and the costs of producing your product (for example, the cost of materials). When doing a break even analysis, one should calculate units or dollars needed to cover company expenses. By determining those, you can come up with a better (and more precise) pricing for your product that accounts for your expenses and units you need to sell to start making a profit.īreak-even point is a situation where business costs and total revenue are equal. It's crucial to determine your fixed costs (such as employee salaries) and variable costs (materials) you need for production of services. ![]() ![]() If you have just started growing your company, you might be asking yourself "When does my company break even? What is the right price for my product? Should I charge more or less?" To answer these questions, you have to start with the basics – a simple financial analysis and calculating your break even. Formula - Break even point in a nutshell Use the following formula to calculate break even point: Break-even point formula (unit sales)īreak even quantity = Fixed costs / (Sales price per unit – Variable cost per unit) Break-even point formula (sales dollars)īreak-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin Why do you need these formula?įor new businesses, reaching a break-even point is a critical milestone insuring a business can cover its total expenses and is at a point to start making a profit.
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