Break-Even Point Formula and Analysis: How to Calculate BEP for Your Business

Break-Even Point Formula and Analysis: How to Calculate BEP for Your Business
Learn how a break-even analysis can help you determine fixed and variable costs, set prices and plan for your business's financial future.
by Colleen Egan Feb 29, 2024 — 4 min read
Break-Even Point Formula and Analysis: How to Calculate BEP for Your Business

When will I break even? It’s one of the biggest questions you need to answer when you’re starting a business. And that’s why it’s so crucial to conduct a break-even analysis, which helps you determine fixed costs (like rent) and variable costs (like materials) so you can set your prices appropriately and forecast when your business will become profitable.

Central to the break-even analysis is the concept of the break-even point (BEP). The following break-even point analysis formulas will help you get there. 

What is the break-even point for a business?

A business’s break-even point is the stage at which revenues equal costs. Once you determine that number, you should take a hard look at all your costs — from rent to labor to materials — as well as your pricing structure.

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Then ask yourself these questions: Are your prices too low or your costs too high to reach your break-even point in a reasonable amount of time? Is your business sustainable?

How to calculate your break-even point

There are a few basic formulas to help you calculate the break-even point for your business. One is based on the number of units of product sold, and the other is based on points in sales dollars. Here is how to calculate the break-even point: 

How to calculate a break-even point based on units:

Divide fixed costs by the revenue per unit minus the variable cost per unit. The fixed costs are those that do not change, no matter how many units are sold. Revenue is the price for which you’re selling the product minus the variable costs, like labor and materials.

To calculate your break-even point in units, use the following formula: Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit).

When determining a break-even point based on sales dollars:

Divide the fixed costs by the contribution margin. The contribution margin is determined by subtracting the variable costs from the price of a product. This amount is then used to cover the fixed costs.

To calculate your break-even point in sales dollars, use the following formula: Break-Even Point (sales dollars) = Fixes Costs ÷ Contribution Margin.

Contribution Margin = Price of Product – Variable Costs

To get a better sense of what this all means, let’s take a more detailed look at the formula components.

How to use a break-even analysis

A break-even analysis allows you to determine your break-even point. But this isn’t the end of your calculations. Once you crunch the numbers, you might find that you have to sell a lot more products than you realized to break even.

At this point, you need to ask yourself whether your current plan is realistic or whether you need to raise prices, find a way to cut costs, or both. You should also consider whether your products will be successful on the market. Just because the break-even analysis determines the number of products you need to sell, there’s no guarantee that they will sell.

Ideally, you should conduct this financial analysis before you start a business so you have a good idea of the risk involved. In other words, you should figure out if the business is worth it. Existing businesses should conduct this analysis before launching a new product or service to determine whether or not the potential profit is worth the startup costs.

Break-even analysis examples

A break-even analysis isn’t just useful for startup planning. Here are some ways that businesses can use it in their daily operations and planning.

Colleen Egan
Colleen Egan writes for Square, where she covers everything from how aspiring entrepreneurs can turn their passion into a career to the best marketing strategies for small businesses who are ready to take their enterprise to the next level.


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