The break-even point (BEP) is where total revenue equals total costs — no profit, no loss. Formula: BEP (units) = Fixed Costs / (Selling Price per Unit − Variable Cost per Unit). BEP (revenue) = Fixed Costs / Contribution Margin Ratio.
What are fixed costs vs variable costs?+
Fixed costs remain constant regardless of production volume: rent, salaries, insurance, depreciation. Variable costs change with production: raw materials, packaging, shipping, sales commissions. Correctly classifying costs is crucial for accurate break-even analysis.
What is contribution margin?+
Contribution Margin = Selling Price − Variable Cost per Unit. It represents the amount each unit sold contributes toward covering fixed costs. CM Ratio = Contribution Margin / Selling Price. Higher CM means fewer units needed to break even.
How do I use break-even analysis for pricing?+
Set your target profit, add it to fixed costs, then calculate: Required Sales = (Fixed Costs + Target Profit) / Contribution Margin per Unit. This shows the minimum units at a given price. Compare different price points to find the optimal strategy.