Break Even Point Formula

The following break-even point equation is used to calculate when a product or service will “break-even”.

What is a break even point?

A break-even point is often considered the point at which the revenue of a good or service becomes greater than the total cost of that product.

For example, if a service you provide cost $15,000 in initial costs, and is sold for $1,000/ea, then the break even point will be 15 units. Assuming the cost to provide the service is 0$. If that service also costs you money each time you provide it, then that must be taken into account as the above formula and calculator both do.

How to calculate a break-even point?

The following example outlines the general process for calculating a break even point.

Let’s say we own a company that goes by awesomeness inc. We plan to produce a new state of the art car that will be able to fly. (Yes, this is not realistic, but the math will still apply.)

First, we need to determine how much upfront cost it’s going to take to get a manufacturing plant up and running. After planning it’s found that the upfront fixed cost will be $1,000,000.00.

Next, we need to determine how much each car is going to cost to produce. Through raw material costs and production costs, this rounds out to $10,000.00.

Next, we decide to ensure a good profit margin, we are going to sell these cars for $20,000.00

Finally, using the information above, we plug the numbers into the formula and find that are break even point will be $1,000,000.00 / ($20,000 – $10,000) = 100 cars.

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