Understanding the Break Even Point (With 5 Easy Examples and Calculations)

The Break Even Point is the level of sales where your business makes no profit and no loss.
It is the point where your total income equals your total costs.

In simple terms:
Break Even Point = When Profit = 0

Understanding your break even level helps you:

• Know how much you need to sell to cover all costs.
• Set your prices correctly.
• Plan budgets and marketing targets.
• Make better business and financial decisions.

Formula for Break Even Point

There are two simple ways to calculate it.

1. Break Even Point in Units
   Break Even Point (Units) = Fixed Costs / (Selling Price per Unit – Variable Cost per Unit)
2. Break Even Point in Sales Revenue
   Break Even Point (Sales) = Fixed Costs / Contribution Margin Ratio

Definitions:

• Fixed Costs = costs that do not change (rent, salaries, insurance, etc.)
• Variable Costs = costs that change with production (materials, packaging, commissions, etc.)
• Contribution Margin = Selling Price – Variable Cost
• Contribution Margin Ratio = (Selling Price – Variable Cost) / Selling Price

Example 1: Handmade Candles

Fixed Costs = 2,000
Selling Price per Candle = 20
Variable Cost per Candle = 8

BEP (Units) = 2,000 / (20 – 8) = 2,000 / 12 = 166.7

You must sell about 167 candles to cover all costs.
After that, each sale adds profit.

Example 2: Coffee Shop

Fixed Costs = 5,000
Selling Price per Coffee = 4
Variable Cost per Coffee = 1

BEP (Units) = 5,000 / (4 – 1) = 5,000 / 3 = 1,667

You must sell about 1,667 coffees per month to break even.

Example 3: Freelance Graphic Designer

Fixed Costs = 1,200
Average Project Price = 600
Variable Cost per Project = 100

BEP (Units) = 1,200 / (600 – 100) = 1,200 / 500 = 2.4

You need about 3 projects per month to reach your break even point.

Example 4: Online Store

Fixed Costs = 3,000
Average Product Price = 50
Variable Cost per Product = 30

BEP (Units) = 3,000 / (50 – 30) = 3,000 / 20 = 150

You must sell about 150 products per month to break even.

Example 5: Gym Memberships

Fixed Costs = 20,000
Membership Price = 100
Variable Cost per Member = 20

BEP (Units) = 20,000 / (100 – 20) = 20,000 / 80 = 250

You need 250 members to cover all costs.
From the 251st member onward, you start making profit.

Why the Break Even Point Matters

1. Helps you set prices with confidence.
2. Shows how much you need to sell to cover your investment.
3. Helps control risk and plan growth.
4. Makes financial planning more accurate.

Example of Price Change Effect

If your coffee shop increases price from 4 to 4.50:
Break Even Point = 5,000 / (4.5 – 1) = 5,000 / 3.5 = 1,429

Now you only need to sell 1,429 coffees instead of 1,667.
A small price change can make a big impact on your profitability.

Quick Excel Tip

You can calculate your break even point easily in Excel or Google Sheets with a simple formula.
This helps you test different prices, costs, or fixed expenses quickly.

Formula:
=Fixed_Costs / (Selling_Price - Variable_Cost)

Example:
=5000 / (4 - 1) → Result = 1667 units

That means you need to sell 1,667 units to cover all your costs.

You can also create a small table in Excel like this:

Then, change any value to instantly see how your break even point adjusts.
This is a quick and powerful way to simulate “what-if” scenarios such as:

• What happens if you lower your price?
• What if your costs go up?
• How many units must you sell to earn your first €1,000 profit?

You can even add an extra column:
= (Fixed_Costs + Target_Profit) / (Selling_Price - Variable_Cost)

Example for a €1,000 profit goal:
= (5000 + 1000) / (4 - 1) → Result = 2000 units

So, with just 333 more coffees, your coffee shop would reach €1,000 profit.

Read also: Break Even Analysis: A Comprehensive Guide for Business Owners and Investors

Key Takeaways

Final Thought

The break even point is your financial safety line.
Once you cross it, every sale means profit.
Whether you sell coffee, candles, or consulting hours, knowing your break even point helps you make smart business decisions and grow safely.

Analyzing Market Trends: A Guide for All Business Types to Meet Customer Needs and Stay Ahead of Industry Developments