![]() ![]() Outlooks and past performance are not guarantees of future results. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. Speak with a business banker and learn more about the resources available to you, including Chase for Business and Chase Payment Solutionsįor Informational/Educational Purposes Only: The views expressed in this article may differ from other employees and departments of JPMorgan Chase & Co. Using the break-even point formula can help you make smart business decisions that can contribute to your company's success and financial stability. The break-even formula can help you determine the amount of money you need to carry your goals through to completion. Once you're ready to establish long-term business goals. Calculating the break-even point is a useful way to set long-term financial goals for your business, such as increasing your bottom line by evaluating your product mix.Before you launch a new product or service. The break-even point formula can help you determine the amount of profit you need to generate in order to match or exceed the start-up costs of your business.Calculating the break-even point can help you estimate revenues that a business will need to generate to cover fixed costs. Here are some examples of when you might use the BEP: It's a tool you can use at any time during your business journey to understand when one of your business’s products will start to be profitable. The break-even point isn't a static calculation. The cosmetic company must generate $379,746 in lipsticks sales dollars to break even. They know their fixed costs are $300,000, so they just need to figure out their contribution margin.Ĭontribution Margin = (Sales Price Per Unit − Variable Costs Per Unit) ÷ Sales Price Per UnitĬontribution Margin = ($10.95/lipstick − $2.25/lipstick) ÷ $10.95/lipstickĬontribution Margin = $8.70/lipstick ÷ $10.95/lipstickīreak-Even Point = Fixed costs ÷ Contribution Margin This calculation tells you how much money you need to make from the sale of a certain product to break even.īreak-Even Point = Fixed Costs ÷ Contribution Marginįor example, the same cosmetic company wants to determine how much money they need to make from the sale of lipsticks to break even. Calculating the break-even point in sales dollars The cosmetic company needs to sell 34,483 lipsticks to break even.Ģ. The current sales price for one lipstick is $10.95 and the current variable cost to sell one lipstick is $2.25.īreak-Even Point = $300,000 ÷ ($10.95/lipstick − $2.25/lipstick)īreak-Even Point = $300,000 ÷ $8.70/lipstick Their fixed costs, including bills, payroll and rent, total $300,000. This calculation tells you how many units of a single product you need to sell to break even.īreak-Even Point = Fixed Costs ÷ (Sales Price Per Unit − Variable Costs Per Unit)įor example, a cosmetic company wants to know how many lipsticks from their line they have to sell to break even. Calculating the break-even point in units There are two common ways to calculate the break-even point based on your needs: in units or sales dollars.ġ. Contribution margin: the difference between the sales price per unit and the variable cost per unit. ![]() Variable costs per unit: variable costs for each unit, as opposed to the total variable costs.Sales price per unit: the price at which your unit or service will sell to customers for each individual product.Variable costs: expenses that fluctuate in proportion to production output or sales (e.g., materials and shipping).Fixed costs: costs that do not change with sales or volume, with little fluctuation (e.g., monthly rent or interest payments).Let's go over how to calculate a break-even point using two different methods.īefore you calculate your BEP, you need to understand a few basic financial terms used in the formula: It's also a useful figure to keep in mind when managing prices, operating costs and overhead. The break-even point is more than the moment when you pop a celebratory bottle of champagne. Calculating the break-event point (BEP) is a useful tool to determine when your product will become profitable. The BEP is the point at which your total costs and total revenue are equal. Turning a profit is the goal of every business, but it doesn't happen overnight.
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