Break Even Calculator

Compare cost, overheads and business factors again return to calculate your break even point when selling multiple items/products.

Break-Even Point: The Full Recovery Point of Your Investments

If you are looking to make and investment or startup your own business, it is important to know your break even point first. Start ups are exciting, but demand a lot of planning, attention and consistent effort. At the same time, it is essential too think realistically when starting up a new venture. Break even point analysis is an important part of planning any start up. It is that point of time when your business has generated enough revenue to cover your initial cost. It also covers any fixed and variable costs incurred on a monthly basis. Once you have reached the break even point, any additional income generated after that point could be considered as profit.

Using the Break Even Calculator

The break even calculator tells you exactly how many units would you need to sell, to reach the break even point. To calculate the break-even point you will have to enter the following values in the calculator:

• Fixed Cost - It is the total amount that you have invested to start a new business. It will include the cost of basic infrastructure, monthly rent, employee salaries, etc. This is to be noted that fixed costs are not affected by the number of units.
• Variable Cost per Unit - This refers to the amount that you spend to produce each unit of the products you are selling.
• Selling Price per Unit - It is the price of the product per unit that you are selling.
• Expected Unit Sales - It's the expected number of units that you are going to sell.

On the basis of values entered by you, the calculator will provide you with the number of units you would require to reach a break-even point.

In addition to that, the calculator will also show you the following information:

• Total Revenue - This will be the amount of total revenue you will be making by the time you reach break even point.
• Total cost - This will show you the total of fixed and variable costs that will occur before reaching the break even point.
• Net Profit - This will be the amount of profit, if any, you will be making on the expected units sold, before the break even point.

Break even formula

Benefits of Using a Calculator

Ideally, Break-Even calculations should be done before you start a business, launch a new product or start to offer a new service. Using the calculator could be really useful, especially for startups:

1. It is a simple tool for a significant calculation. You just have to enter a few details to get the results that can provide visability of your financial investment in the business in many ways.
2. The calculator is online and gives you 24X7 access to the details about your break even units so you can always complete a sanity check if you are worrying about your business finances in relation to specific product lines or services.
3. You can use the calculator to compare profit margins with competitor startups or to benchmark your current break even point against planned break even points as an internal KPI.

How to use break even calculations

The break even analysis helps you calculate out your break-even point. Calculating the point at which your business starts to become profitable is just the beginning, there is much more to do once you have a target number in your hand; you can start working on your sales strategy, marketing and other financial planning elements of your business strategy.

After the number crunching you may have to figure out a way to reach the break even point as soon as possible. This may require cutting costs or increase in selling prices. Let's take a detailed look at how you can use the calculations to leverage a lower break even point and boost business profitability:

Setting Business Goals (Key Performance Indicators)

Once you know the number of break even units, it will give you a target which you and your staff can aim towards. A break even point could be an ongoing target, say 20 units per week. This provides motivation to work toward your goals and forms a Key Performance Indicator (KPI) that your sales and operations teams can use as a tangible benchmark for success.

Business Planning

When you know exactly how many units you need to sell to reach the break even point, it becomes easier to plan ahead of the time. This also helps you in setting long term goals. So, your break even plan will form your datum point at which you become profitable. You can then add tiers, say 5%, 10%, 15%, 20% and so on. Achieving 5% may well be the disired growth rate to allow the business to succeed, achieving 10% or 20% would facilitate excellent business growth. Knowing this allows you to set targets for your sales teams and provide incentives for them (financial, promotion, shares etc.). The key overall factor is the visibility that the figures provide. Quantifying the success rates allows those with drive and determination to push to achieve the highest levels which is great for personal achievement, financial reward and overall business success.

Business Resources: Staff and Materials

With the break even result you can start to analyze the micro components that create the overall cost. Quantifying those components correctly allows you to identify areas where you may be able to cut costs. Examples including hiring freshers (typically more flexible in work hours and less costly from and hourly rate ratio), sourcing alternate merchants who can provide you with the same quality material on lower costs, investing in IT (software and hardware) to leverage a reduced transformation cost model, going paperless, reducing manual handling, streamlining processes and so forth.

Business Growth: Adding new products

You might want to add new products to sell to reach the break even point. This can be particularly useful if you are considering break even from an overall business perspective. Increasing product lines may be a cheap solution (say you have a shop or warehouse, adding more product lines will likely add little to your holistic operational costs). When taking this approach, it is important to consider the product break even point (or line item break even point) as well as the overall break even point for the business or sub business units.

Product Pricing

The calculations will show you if your prices are compatible with your break even units goals. You might decide to raise the prices, but the comparable items in the market must be considered before doing that. For example, raising prices doesn't necessarily mean more profit as sales are typically demand led. That means that the more people want things, the higher the demand. The higher the demand, the less product availability. The less availability, the easier it is to increase the relative value of a product. This is why big companies like apple release their new iPhone in a controlled manner. Their strategy being to create demand and sustain that demand for as long as possible to keep the prices high. Cheaper phones manufactures will happily flood the market as they are looking at a smaller profit margin with the aim of high unit sales.

In Summary

The Break-Even point is where your total revenue will become exactly equal to your cost. At this point the profit will be 0 and any income earned beyond that point would start adding into your profits. Understanding your breakeven point from a holistic and micro business level will provide you and your staff visibility that supports effective targets to support individual, team and business success via clear, quantified goals.