Break-even point explained, with a worked example

Your break-even point is the amount you must sell to cover all your costs. Below it you make a loss; above it, a profit.

The formula

Break-even units = fixed costs ÷ (price per unit − cost per unit). The bottom part, price minus cost per unit, is what each sale contributes towards your fixed costs.

Example

A shop has fixed costs of 60,000 a month. It sells an item for 500 that costs 300 to buy. Each sale contributes 200. Break-even is 60,000 ÷ 200 = 300 units, or 150,000 in sales. For a 20,000 profit, it needs (60,000 + 20,000) ÷ 200 = 400 units.

Using it

• If break-even is more than you can sell, raise the price, cut the cost per unit or reduce fixed costs.
• Recheck it whenever rent, supplier prices or salaries change.