Break-Even Point Calculator

What is a Break-Even Analysis?

Break-even analysis determines the point at which your total revenue equals your total costs. At this point, you're not making a profit, but you're not losing money either.

Key concepts:

• Fixed costs: Expenses that remain the same regardless of how many units you sell (rent, salaries, insurance)
• Variable costs: Expenses that change based on production volume (materials, direct labor, commissions)
• Contribution margin: The amount each unit contributes to covering fixed costs and generating profit (selling price minus variable cost)
• Break-even point: The number of units you need to sell to cover all costs (fixed costs ÷ contribution margin per unit)

South African Business Considerations:

For South African entrepreneurs:

• VAT registered businesses (turnover >R1 million) should adjust calculations accordingly
• Consider exchange rate fluctuations if importing materials
• Account for load shedding costs if applicable (generators, inverters, etc.)
• Factor in regulatory compliance costs specific to your industry

Using Break-Even Analysis:

This analysis helps you:

• Set realistic sales targets
• Adjust pricing strategies
• Identify ways to reduce costs
• Make informed decisions about expansion
• Understand the financial risks of your business

Break-Even Point (in units):

Break-Even Point = Fixed Costs ÷ (Price Per Unit - Variable Cost Per Unit)

Break-Even Point (in revenue):

Break-Even Point = Fixed Costs ÷ Contribution Margin Ratio

Where: Contribution Margin Ratio = (Price - Variable Cost) ÷ Price

Units required for target profit:

Units = (Fixed Costs + Target Profit) ÷ (Price Per Unit - Variable Cost Per Unit)

Margin of Safety:

Margin of Safety = (Current Sales - Break-Even Sales) ÷ Current Sales