How to Calculate Break-Even Point?
The Break-Even Point (BEP) is the stage at which total costs and total revenue are equal. At this point, your business is making zero profit but also zero loss. Everything sold after this point contributes directly to your profit.
The Break-Even Formula:
Break-Even Units = Fixed Costs / (Selling Price - Variable Costs)
Key Terms to Know:
- Fixed Costs: Expenses that do not change with sales volume (Rent, Salaries, Insurance).
- Variable Costs: Expenses that change based on how much you produce (Raw materials, Shipping, Commissions).
- Contribution Margin: The selling price minus variable costs. This is the amount available to "contribute" toward paying off fixed costs.