Break-Even Analysis

As a small business owner, one of the major milestones you will hit is the break-even point. This is the point when a business’s sales cover its costs. The break-even point can be calculated in terms of the number of products the business needs to sell, or the amount of money the business needs to make from the sales.

When a company reaches a break-even point, it has made enough profit to cover its earlier costs or investment in a product, but it is not yet making a profit. When using this calculator, you will need to know the expected number of units or services you will sell over a specific period of time (i.e., one month or year). Other terms you should familiarize yourself with in the list of definitions include average per unit revenue, fixed cost and average per unit cost.

After using this calculator, you will have more insight on how many units you will need to sell to cover your fixed costs, and of potential sales goals you can work toward to cover your monthly costs.

Before exploring this calculator familiarize yourself with some of the terms and definitions that are used in this financial tool.

Average per unit cost: This is the average amount needed to produce one unit or service.

Average per unit revenue: This is the average revenue amount generated by the sale of one unit or user over a specific period of time (i.e., one year).

Break-even point: The point when a business’s sales cover its costs. The break-even point can be calculated in terms of the number of products the business needs to sell, or the amount of money the business needs to make from the sales.

Business costs or expenses: Business costs, also called business expenses, are all the costs associated with running a business. These could include fixed expenses, which stay the same from month to month, such as rent, salaries and insurance. Many businesses also have flexible expenses, which change from month to month, such as payroll or supplies.

Cash flow: The total amount of cash and cash-equivalents flowing in and out of a business

Cash flow statement: A financial statement that can show a business’s cash flow over a certain period of time. Creating and reviewing cash flow statements can help business owners manage the company’s money.

Estimated monthly fixed cost: This is an expense or cost that does not change with an increase or decrease in the number of units or services produced or sold. Fixed costs are expenses that need to be paid by a company on a monthly basis. A fixed cost is one of the two elements of the total cost of running a business, the other being variable costs.

Expected unit sales: The number of units that you expect your business will sell.

Fixed cost: The total costs required to produce a product.

Negative cash flow: When more cash leaves a business than comes into a business. Having negative cash flow could be a sign that a business will have trouble paying for future expenses.

Positive cash flow: When a business has more money coming in (revenue) than going out (expenses).

Revenue: Revenue is the amount of money that a company earns during a specific period. It is the gross income/profit figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is also known as sales on an income statement.

Sales: The income earned from products or services. This is also referred to as revenue.

Variable unit cost: The variable unit cost is a business expense that changes as productivity increases or decreases. Unlike fixed costs, variable unit costs change and are affected by the number of units or services sold.

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