Calculating your Break-even Point
Now you an understanding of the different types of costs associated with running your business, you can begin to calculate your break even point. The formula you need to use to calculate your break-even point would be:
Break-even point = Fixed Costs / Contribution Margin Per Unit
As an example, if your fixed costs are $10,000 per month, the price of your services or products per unit is $50 and your variable costs are $30, your contribution margin per unit is $20. Then by using the formula above you can calculate your break-even point to be:
Break-even point = $10,000 / $£20 = 500 units
So this means you would have to sell your services 500 times each month to cover your fixed costs and start making a profit.
Now, have a go at calculating your break even point yourself. If you need help, take a look at our handy cost calculator tool (coming soon!).