![]() Because from the calculation of the Break-Even Point (BEP), you can find out how to gain profits or determine the break-even point for your newly established business. Why Calculating BEP Is ImportantĪs a business owner, you need to calculate BEP in detail. At this point, the total losses are precisely at point 0 (zero), which means the company or business does not experience losses, but also does not make a profit. The break-even point is where the total value of revenue equals the amount of capital expended. To learn more, download The Definitive Guide To 401(k)/ROBS Business Funding.Before discussing how to determine the break-even point (BEP), it is essential to understand the overall concept related to BEP. Our unique business financing solution uses existing 401(k) or IRA funds to fuel your business launch or expansion. Understanding what your business needs to thrive is what Benetrends values. The company would need to generate $25,000 in sales to break even. The contribution margin ratio is $200 ÷ $500 = 0.4 In our example, the contribution margin is $500 – $300 = $200. It’s calculated by using this formula:īreak-Even Point in Revenue = Fixed Costs ÷ Contribution Margin RatioĬontribution Margin = Price of Product – Variable CostsĬontribution Margin Ratio = Contribution Margin (per unit) – Revenue (per unit) ![]() The other method used is the revenue-based break-even point. If 60 units are sold, then the company would have a net profit of $2,000. Here is the calculation using our example figures: ![]() ![]() (Selling Price Per Unit – Variable Costs Per Unit) To calculate the unit-based break-even point, use the following formula:īreak-Even Point in Units = Fixed Costs ÷ There are two ways to calculate a break-even point commonly used among businesses – using product units sold or sales dollars. To illustrate, consider a company that has the following figures:
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