how to calculate break even point in business plan

Content. The break-even point is the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business. In other words, you've reached the level of production at which the costs of production equals the revenues for a product. For any new business, this is an important calculation in your business plan.

The phrase “break-even point” comes up a lot in business planning—but like many small-business accounting terms and equations, it’s a little hard to grasp right off the bat. Business.org explains what a break-even point is, how to calculate it, and why it matters.

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.

How Do Businesses Use the Break-Even Point in Break-Even Analysis? The break-even point (BEP) helps businesses with pricing decisions, sales forecasting, cost management, and growth...

Knowing the break-even point helps decide prices, set sales targets, and prepare a business plan. The break-even point calculation is an essential tool to analyze critical profit drivers of your business, including sales volume, average production costs, and, as mentioned earlier, the average sales price.

A break-even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs. Break-even analysis is important to business owners and managers in determining how many units (or revenues) are needed to cover fixed and variable expenses of the business.

How to calculate the break-even point. Before you can begin your break-even analysis, you’ll first need to determine your business’s break-even point. The break-even point can be found by using one of two formulas: Break-even point formula in sales dollars. Break-even point formula in number of units.

How to calculate the break-even point. To calculate your break-even point, you’ll need to know the following: Fixed costs: Expenses that remain consistent no matter your sales volume. Variable costs: Expenses that change depending on your sales/production volume. Sales price: The price that you intend to sell the product/service for.

As your business plans new products, knowing the break-even point helps you price more efficiently. As you plan your overall business cash and profit strategy, break-even can be used to determine profit points for product lines.

The formula for calculating the break-even point (BEP) involves taking the total fixed costs and dividing the amount by the contribution margin per unit. Break-Even Point (BEP) = Fixed Costs ÷ Contribution Margin.