Free Break Even calculator to help you plan & start a businessBreak Even Analysis is an important tool in the entrepeneur's toolbox. Companies use this type of analysis to help decide whether a new product will be profitable or not. In the simplest terms, the Break Even Point is the point where the revenue received from the sale of a product (or a service, break even analysis maps perfectly well to service industries as well. You just have to treat your service as one unit of product.) is equal to the total cost of making & selling the product. Sounds simple doesn't it? In reality, it can be quite difficult to get this type of forecast exactly right, so feel free to use our calculator.
Definitions of terms used in the Break Even Analysis.
- Fixed Cost - These are costs that are the same regardless of how many items you sell. All start-up costs, such as rent, insurance and office supplies, are considered fixed costs since you have to make these outlays before you sell your first item.
- Variable Cost - These are recurring costs that you absorb with each unit you sell. For example, if you were operating a candy store where you had to buy lollipops from a candy company for $1 each, then that dollar represents a variable cost. Labor & materials are your basic variable costs, but you may have others.
- Price per unit - Pretty self-explanatory, this is the price for one unit of your product.
- Number of units per month - Also self explanatory, this is the number of units that you expect to sell per month.
- Break Even Point - This is the point where the Total Revenue line crosses the Total Cost line.