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CalculateCalculate the

for a Business

How to

Break-Even PointBreak-Even Point

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What is the Break-Even Point?

Break-even Point: the amount ofsales a business needs to generate to reach a profit of zero.

In other words, itʼs the minimum amount needed to keep the business running.

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What You Need to Calculate the Break-even Point:

Your Gross MarginGross Margin % = (revenue - cost of goods sold) / revenue

Your Overhead CostsNecessary costs regardless of sales. IE: rent, insurance, payroll.

Your Balance Sheet PaymentsPayments not classified as an accounting expense. IE: principal loan payments, investor payments, owner draws.

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The Break-Even ForMula:

Break-even Point = (Overhead Exp. + Balance Sheet Payments) / Gross Margin

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Example:

Your gross margin is 89%Your total overhead costs are $25KYour total balance sheet payments are $7K

Break-even = ($25K + $7K)/89% = $35,955

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What This Means:Your company needs to generate $35,955 in sales in order to keep the doors open and continue operating.

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