The Break-even calculator helps you calculate the number of products you have to sell to cover all your business costs - fixed and variable - thus resulting in zero net profit.
Variable costs per unit, that is all costs that change with the output produced (e.g. raw materials, energy, …)
Price per unit
Fixed costs, namely all costs that a business incurs and are independent on the output produced (e.g. machinery, plant)
The break-even quantity is calculated by dividing the total fixed costs by the gross profit per unit, as follows:
Gross Profit per unit = Price per unit - Variable costs per unit
Break-even Quantity = Total fixed costs / Gross profit per unit
The break-even revenue represents the amount of revenue that equals the total cost, and is obtained as follows:
Break-even revenues = Break-even Quantity * Price per unit
The calculator also displays the following KPIs:
Gross Margin = (Price per unit - Variable costs per unit) / Price per unit
Mark-up = (Price per unit - Variable costs per unit) / Variable costs per unit
Break-even analysis is crucial for any business because it provides it with a clear understanding of its financial viability and the potential risks associated with its operations. It helps businesses identify the point at which they can start making a profit, enabling them to set realistic goals and make strategic decisions to maximize profits and minimize losses.
Some examples of the usage of break-even analysis include:
Pricing decisions: Companies can use break-even analysis to determine the minimum price at which they should sell their products or services to cover their costs and make a profit. By knowing the break-even point, companies can decide whether to lower or raise prices, offer discounts or promotions, or adjust their production volume.
Expansion or investment decisions: When businesses are considering expanding their operations, they can use break-even analysis to determine whether the expansion will be financially viable. By calculating the break-even point for the new operation, they can determine the sales volume needed to cover the additional costs and make a profit.
Cost-cutting decisions: Companies can use break-even analysis to identify areas where they can reduce costs. By knowing the fixed and variable costs of their operations in each department, they can determine the break-even point and identify ways to reduce costs without negatively affecting their profit margins.
Product mix decisions: Companies can use break-even analysis to determine the most profitable product mix. By knowing the gross profit margin and fixed costs of each product, they can calculate the break-even point and decide which products to produce and sell to maximize their profits.