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What is the break-even calculator? – Let’s outline it!
Basically, breaking-even means selling enough products to cover up the fixed costs/expenses. At the
break-even point, you will be making zero profit. Simply put, this is:
Total costs involved = total revenue generated
If your sales go beyond the break-even point, you’ll be making a profit depending on the sales made after
the break-even point has been reached. Likewise, sales under the amount specified by the break-even
the point means you’re not selling enough products, and hence going into loss.
Here is where the break-even calculator comes in handy; it helps you calculate how many units of the
product you have to sell to reach the break-even point. When your sales go beyond that specific point,
you’ll be yielding profits.
Break-even formula
The break-even formula is one way you can use to find the break-even point.
In other words, the break-even point is equal to the fixed cost less the difference in the selling price and
variable price (both values taken per unit). The answer will be the number of units (of products) you need
to sell to cover your expenses while making no loss or profit.
Putting it out in a simpler way;
The denominator of this equation, i.e. (Selling price per unit) – (Variable price per unit) is also called the
contribution per unit.
How to calculate the break-even purpose
To calculate the break-even point for your business, you will be using the formula stated above. Let’s
discuss the values to be used in the formula now.
In the “fixed cost”, you will add the costs involved that remain constant no matter how many products your
business makes or sells. In other words, these costs are independent of product production. Examples of
fixed costs include the rent, tax, and salaries to be paid.
The variable cost is the price that is dependent on the number of goods produced or sold. Examples
include sales commissions and the money invested in raw materials.
Finally, the selling price per unit is the cost you are selling a single product for.
Beyond the break-even purpose – there’s additional to consider!
You’ve got the units figured for breaking even. But that’s not the end of it.
These units may be a little unrealistic. In such a scenario, you need to increase the selling price of
products or decrease the fixed and variable costs. Both of these steps will help decrease the number of
break-even units, which means you’ll reach the zero loss and zero profit point with a lesser number of
products.
Who uses the break-even calculator?
If you’re starting a business, the break-even calculator should be your best friend. Figuring out the break-
even point will help you understand the scope and profitability of the business.
If you already own a business, you need to use the break-even calculator whenever you want to launch a
new product. This will help you figure whether or not the new product will be worth it.
Final words
The break-even calculator is used by businesses worldwide and helps them plan roughly before
launching any new products. It shows the scope of the product to be introduced, estimates effective fixed
and variable prices, and decides the acceptable selling price of the product.