Break Even Analysis Formula – Online Calculator

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Break Even Analysis Formula – Online Calculator

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When it comes to the break even analysis formula, goal setting comes to my mind. So exactly what is break even? Well, it’s the point where your company has made enough revenue that you didn’t make any money and you didn’t lose any money. You’re dead even and on the cusp of being profitable.

For many businesses, hitting break even is one of those first early goals. It’s the point where an owner can wipe their brow and say, I might not be making any money, but I’m certainly not losing any either. It’s a good feeling, because the next dollar earned should put them into profitable status, even if they’re not rolling in the money.

So, today, I’m going to show you how to calculate your break even. And for those who just want to get the numbers and run, I’ve added a nice little break even calculator for you also. Still, I highly recommend trying to accomplish break even calculations on your own first. After all, you won’t always have my website up in front of you (though you should :)). And besides, the calculations are quite simple. It’ll be a great tool to have under your belt.

Startup Vs Ongoing Expenses – Gotta spend it to make it

300x250The first thing you’ll need to determine your break even is all your expenses. I classify expenses into two major categories. There are startup expenses. Startup expenses include everything you need to open your doors on day one. It might include your marketing & advertising, employee training, website development, inventory, deposits (lease, utilities, etc), rent, supplies… the list goes on and on, and startup expenses will vary by industry and your business model. And though slightly different, I like to throw expansion expenses in this category also. An expansion expense would include anything you need to fund in order expand.

The other type of expense are the ongoing ones. Once you’re in business, you’ll typically need to spend money in order to continue earning money. You might find that some of your startup expenses continue to be ongoing expenses. For example, you purchase your domain name and hosting package, but continue to receive bills monthly, annually, or every few years. The due dates can also vary for ongoing expenses. For example, you might pay your employees weekly, bi-weekly, or even monthly. Ongoing expenses might even vary by sales. Consider commission, for example. It’s only paid when there is a sale.

Fixed Vs Variable – Turnover and overhead

CheckBookFixed costs are often called overhead costs. These are the costs of doing business regardless if you ever make a sale. An example of a fixed cost would be the renewal registration for your website domain name. It doesn’t matter how much or little you sale, the registration will be the same amount. A fixed loan payment, would be the same.

Variable costs fluctuation based upon sales. I mentioned commission earlier. This would be an example of a variable costs. Inventory would be another example. Typically, you buy new inventory once you sale the old. Typically, the greater the turnover, the better. As a side note, the purchase of inventory would be considered the cost of goods sold.

Not everything fits in a nice neat package. Some expenses are hybrids. Take a lease, for example. The landlord doesn’t care if you’re not making money. You’re responsible for paying your lease, regardless. In many cases, your lease will be a set amount regardless of how much you make. However, a lease can also include a variable amount, such as you see in malls. In this case, the tenant is charged the fixed cost of occupying the space, plus may pay a variable cost based upon sales.

Calculations Made Easy


Once you determine your expenses, broken down by fixed and variable costs, you’re ready to begin your calculations. In this example, we’re going to do our break even calculations for a 12-month period. However, you can do a break even calculation for however you want, depending on your particular need. For instance, someone might want to do a longer break even analysis if they’re a startup and want to determine their break even for something like a period of 5 years.

To begin, determine all your costs for one year, broken down by fixed and variable expenses. Next, determine what you charge for your product, service, or hourly rate.

Before I give you the calculations, I want to set you up with a scenario to work with. Let’s say I custom design t-shirts. My fixed expenses include my advertising costs ($800/mo), my loan payments for my startup expenses ($500/month), and membership dues ($300/year) for a total of $10,500 a year. My variable costs are $2.75/per shirt, $4/screen (70 shirts), and ink ($3.50 for 70 shirts) equals $200 for a set of 70 shirts. Let’s say it costs me $100 in labor to setup the machine, bringing the total to $300. We’ll say a minimum order is 70, which we’ll consider one unit. So the variable cost of one unit is $300. We’ll sell our shirts for $15 each. Which means 70 shirts would retail $1,050.

Now for the formula! Breakeven = fixed costs/ (unit selling price – variable costs)

So, in the scenario above, you’d have

Breakeven = $10,500 / ($1,050 – $300)

Breakeven = $10,500 / 750

Breakeven = 14 units

Therefore, I would need to make 14 sales to make breakeven or $14,700 in sales revenue. Remember, we decided that one unit sell is 70 shirts at $15 a piece. If 70 shirts retail at $1,050, then 14 units (70 shirts) equals $14,700.

Figure trying to CalculatorReal-Time Break Even Calculator

Now that you know how to calculator your break even, I’ve provided a calculator for you to check your work. FYI, I’m not the greatest programmer, so if you try to break the calculator, you probably will. 🙂
Break Even Calculator

Break Even Calculator

Only enter numbers as shown in the examples below.

= Retail Unit Price
= Variable Costs
= Fixed Costs

Break Even =

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By | 2016-12-09T14:10:41+00:00 January 14th, 2016|Business Financials, Financial Tools, Templates & Tools|20 Comments

About the Author:

Renee Townsend is a Certified Professional Coach and Business Consultant, who helps women start, grow, and run successful companies. She has a special knack for finding money for startup businesses and helping entrepreneurs get funded.

20 Comments

  1. Amanda January 15, 2016 at 8:02 am - Reply

    Fantastic! I took college courses in accounting that are easily summarized in your article. The calculator is useful and gave me a great lead for my business. Thanks for the info

    • Renee January 15, 2016 at 8:40 am - Reply

      I have to be honest, accounting isn’t one of my strong subjects. However, I love formulas. Give me a spreadsheet and some problems, and I’ll do formulas all day. Make me use my head to crunch numbers, and we might find 2 + 2 = 7. 🙂

  2. Arief January 15, 2016 at 8:10 am - Reply

    Thank you for explaining how to get my break even point. I will remember to put this on the sales projection.

    Will you be providing ROI calculator later?

    • Renee January 15, 2016 at 8:37 am - Reply

      That’s a good question Arief. When I think of returns on investments, I think investors. This website is more of a resource for small business owners. However, I can see how a ROI calculations could be beneficial to a business owner looking to attract investors for a startup or expansions project. I know a bank expects to get a return on their investment, which is why they’re willing to loan money to business owners at all. 🙂 I can also see business owners wanting to see if they’ll get a decent ROI when purchasing equipment or expanding. We’ll have to see if we work on an ROI calculator. I think a break even analysis will give most business owners a decent idea of if they want to explore a particular market.

  3. Josh January 15, 2016 at 3:10 pm - Reply

    I like the workable calculator and helps me remember to do it now before I kick my calculations down the road for another day yet again.
    My wife & I are self-employed and are currently working on another product right now and we are always in the process of trying to crunch numbers. Thanks for the info!

    • Renee January 15, 2016 at 6:57 pm - Reply

      I checked out your website, Josh. Break even analysis would be great in the water purification arena, as it’s a retail business. I noticed you talk about quite a few different types of purification. It’d be interesting to do a break even comparison model to determine which method would be more profitable, or even to determine pricing for the units.

  4. Benedetto January 20, 2016 at 7:16 am - Reply

    Oh wow I wish there would be more people like you providing me wit ha break even calculator. 🙂 This was a very detailed post and I really enjoyed it. I learned a lot and I would have to read it a couple of times to really get the hang out of this and make it stick, also because I have never heard of a break even calculator, thank you so much.!!!

    • Renee January 20, 2016 at 7:22 am - Reply

      It’s a simple calculator that I created using a script. One day I hope to glean enough information to create a nifty program. Feel free to use the calculator to check your answers.

  5. Tar January 23, 2016 at 7:42 pm - Reply

    I agree with your point that break even guides in making a decision on achieving a goal. It gives a rough idea what should be done.

    Thanks for showing the calculation. It’s great to such a useful knowledge, perhaps it is something a tool for online business, right?

    Talk about online business, you mentioned domain name as fixed costs. This proves that you apply what you learn practically, meaning applying theory in reality. Nice one!

    • Renee January 23, 2016 at 7:48 pm - Reply

      Thanks for commenting, Tar. Yes, the break even calculation can be an invaluable tool to businesses. If you don’t know what your break even point is, it’s difficult to know how much you need to sell before you start seeing a profit. I see it as a way to even determine feasibility. For example, if you plan to open a burger joint and know you need to sell 500 burgers a day to break even, but live in a town that only has a population of 200 with little pass through traffic, you might want to reconsider your options.

  6. Josue Castillo January 23, 2016 at 7:54 pm - Reply

    Great Article! I love the calculator. Practically my entire family is self employed at the moment and i think this can be very helpful for them. I need to show them this asap. It will definitely ease the prcoess of all those number crunchings. Thank you for the useful calculator.

    • Renee January 24, 2016 at 2:04 am - Reply

      Awesome, Josue! It’s never too late to incorporate ideas into a business. Since many of your family members are already self-employeed, this might be a good tool for goal setting.

  7. Masele January 23, 2016 at 8:02 pm - Reply

    Very useful topic, I am an accountant by profession and I was not very sure when they say we have have reached break even point. I now have clear understanding of the real meaning. I will give a try when I start my new business and I will refer the page to my daughter who is in the process of starting a business.
    Thanks,
    Masele

    • Renee January 24, 2016 at 2:01 am - Reply

      I’m glad you found the information useful, Masele. I often get clients who aren’t sure of their pricing strategy or how many units they need to sale with their pricing strategy. The breakeven gives them a nice starting point. I wish you and your daughter the best of luck with your startups.

  8. Pitin February 1, 2016 at 1:56 am - Reply

    Hi Renee,

    I have a version of a break even calculator which I always use – my pen and notebook. haha! Thanks for this, you are going to make my life easier. I admit I am in the early stages of my online business and I probably have spent more money out. Do you think it is advisable to include expenses (a.k.a. scam products) prior to opening my online business? If i include them, ill probably spend more years trying to just get to the break even point!

    • Renee February 1, 2016 at 4:25 pm - Reply

      When I was in primary and secondary school, pen and paper were my holy grail. As the years progressed, calculators have become my new crutch. It’s come to the point I can’t even do simple addition without one.

      You ask a great questions about scam products. My gut instincts say it can be included as an expense. HOWEVER, as I tell everyone, “I’m not a lawyer or an accountant.” Therefore, I’m not qualified to give legal or tax advice. My recommendation is to talk to your accountant. You might even call the IRS and ask them.

      Thanks for stopping by, Pitin.

  9. Helen February 6, 2016 at 10:22 am - Reply

    I really like the practical approach you’ve taken to help people understand the different types of expenses. Many people become so excited about starting up a business without realising the importance of really crunching the numbers to make sure their idea is viable. This article helps them understand why they need to be focussed on the numbers.

    Great idea too to provide a working break even calculator on your site. Saved me looking around for a calculator on my desk.

    • Renee February 6, 2016 at 2:56 pm - Reply

      I agree, Helen! Starting a business is extremely exciting. I think many entrepreneurs have a personality that jumps to the “just do it” stage. It’s good to temper that excitement with just a wee bit of planning to increase the chances of success. Thanks for visiting.

  10. Ido Barnoam February 6, 2016 at 5:14 pm - Reply

    Great post.
    I’m starting my own business right now, and your post made me think of a few additional things to consider when I’m calculating my expenses.
    I think that you’re post made me realize that I have to spend a certain amount on advertising each month to gain new clients, which after you figure it out sounds very simple.
    Thanks

    • Renee February 7, 2016 at 4:34 am - Reply

      Congratulations on starting a new business, Ido! I am a strong believer in advertisement. However, it needs to be the right type of advertisement and targeted. A scattered approach can not only be ineffective, but also costly. Good luck on your startup. Feel free to ask business related questions, and I’ll do my best to point you in the right direction.

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