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Break-even point: formula, example and chart

Break-even point (BEP) is the sales level at which revenue equals the sum of variable and fixed costs and profit is zero. Below BEP, a business generates losses; above it, profit.

What the metric measures

The minimum sales volume required to break even. It helps assess the risk of falling demand and sensitivity to price and cost changes, and to plan prices, promotions, and production capacity utilization.

Calculation

  • BEP, units = Fixed costs / (Price per unit − Variable costs per unit)
  • BEP, UAH = Fixed costs / Contribution margin, %
  • Contribution margin, % = (Revenue − Variable costs) / Revenue × 100
  • Margin of safety, % = (Actual revenue − BEP, UAH) / Actual revenue × 100

For a product portfolio, use a weighted average contribution margin or model several mix scenarios.

Calculation example

Fixed costs are 400,000 a month, the price per unit is 1,000 and the variable cost per unit is 600. The contribution per unit is 400, so break-even = 400,000 / 400 = 1,000 units, or 1,000,000 in revenue. Selling 1,300 units gives a 23% margin of safety.

Data sources

ERP/1C (P&L), variable and fixed cost calculations, price lists/net prices, discount and commission rules, actual sales volumes, and SKU/plan mix.

Interpretation

  • Lowering BEP by raising prices, improving contribution margin, or cutting variable or fixed costs
  • High BEP: dependence on large volumes and a risk of losses when demand dips
  • Margin of safety shows the safe "buffer" of current turnover

Useful breakdowns

  • Products/categories/SKUs, channels, regions/points of sale
  • B2C/B2B, promotional periods, production lines
  • Price, discount, and commission scenarios

Dashboard visualizations

  • Intersection of the Costs–Revenue lines with the BEP point
  • BEP in UAH and units vs actual volume
  • Margin of safety over time
  • Sensitivity to price/variable costs
  • Waterfall of the impact of price, mix, discounts, and costs on the BEP shift

How to set targets

Define a target margin of safety, % and a target contribution margin, % by category/channel, set discount limits and a plan to lower BEP through prices, COGS, and fixed costs. Review scenarios monthly/quarterly.

Common mistakes

  • Confusing variable and fixed costs
  • Including VAT in calculations
  • Ignoring marketplace/delivery commissions
  • Using an average margin without accounting for product mix
  • Comparing unequal periods and ignoring seasonality
  • No price/discount scenarios

Questions for discussion

  • What will lower BEP faster: price, mix, COGS, or fixed costs?
  • What is the margin of safety in peak and low seasons?
  • How will BEP change with a new promotional calendar or commissions?

Questions and answers

What is the break-even point?

The sales volume at which revenue equals all costs: there is no profit yet, but no loss either.

How do you calculate the break-even point?

In units: fixed costs / (price − variable cost per unit). In money: fixed costs / contribution margin ratio.

What is the margin of safety?

By how many percent sales can fall before the company makes a loss: (actual sales − break-even sales) / actual sales × 100.