How do you calculate your break-even point?
A break-even analysis can help you determine how many units you'll have to sell to cover your monthly business expenses, or break even.
How to calculate your break-even point
This flow chart will guide you through the numbers you need to calculate your break-even point, which is the number of units you need to sell each month to cover your expenses.
First determine your monthly fixed costs, such as:
- Administrative costs
Then determine your monthly variable costs, such as:
- Shipping costs
- Sales expenses
Next, determine the variable cost per unit by taking your monthly variable costs and dividing the total by the number of units produced monthly
Once you’ve determined your variable cost per unit, subtract that from the average unit selling price.
Finally, divide the remainder from your total monthly fixed costs and there you have it: Your break-even point.
Any units you sell beyond your break-even point will earn you a profit. If you don't reach your break-even point, however, your business can't cover its expenses.
Labor may be listed as a fixed and/or variable cost. Management salaries, for instance, may be fixed while hourly wages vary. Take this into account as you conduct your break-even analysis. The number calculated is monthly units that must be sold to break even.