1. What Is the Break Even Point?
The break even point (BEP) is where your total revenue equals your total costs—meaning:
- No profit, no loss
- It tells you how many units you need to sell to cover expenses
- It helps in setting prices, sales goals, and budgeting for sustainability
Understanding BEP is crucial for startup planning and investor confidence.
2. Components of Break Even Calculation
To work out break even, you need:
- Fixed Costs: Costs that don’t change with sales (e.g. rent, salaries, insurance)
- Variable Costs: Costs that rise per unit sold (e.g. materials, packaging)
- Selling Price per Unit: What you charge per product/service
This formula gives you the break even quantity:
Break Even Point (Units) = Fixed Costs ÷ (Selling Price – Variable Cost per Unit)
3. Step-by-Step Example
Let’s say:
- Fixed costs = £10,000
- Selling price = £25 per unit
- Variable cost = £10 per unit
BEP = £10,000 ÷ (£25 – £10) = £10,000 ÷ £15 = 667 units
So, you must sell 667 units to break even.
4. Why Break Even Matters
Knowing how to work out break even helps:
- Set realistic sales targets
- Determine pricing and profit margins
- Plan promotions without losing money
- Forecast how long before your business becomes profitable
It also supports loan and investment applications.
5. Common Mistakes to Avoid
- Underestimating fixed costs – Always include every overhead
- Ignoring taxes and VAT – Adjust prices if VAT registered
- Overestimating sales price – Be competitive, not unrealistic
- Forgetting seasonal changes – Use average monthly figures for accuracy
Recalculate BEP regularly as your costs or pricing change.
6. Using Break Even to Make Decisions
Break even analysis helps decide:
- Can I afford to lower prices?
- How many sales do I need to justify a new hire?
- Should I invest in new equipment or a marketing campaign?
It keeps your decisions grounded in financial facts.
Frequently Asked Questions
Q1: What is break even in simple terms?
It’s the point where your business makes enough money to cover all its costs—without profit or loss.
Q2: Is break even the same as profit?
No. Break even means zero profit. Profit starts after you pass the break even point.
Q3: How often should I calculate break even?
Recalculate when prices, costs, or business conditions change significantly.
Q4: Can services use break even analysis?
Yes—use billable hours or packages as “units” in the formula.
Q5: What’s a good break even point for a startup?
The lower the number of units needed, the better—indicating lower risk and faster returns.
Q6: Are tools available to automate this?
Yes—Excel, Google Sheets, and online calculators simplify break even analysis for UK businesses.
Conclusion
Knowing how to work out break even is essential for every entrepreneur. It’s not just about numbers—it’s a decision-making tool that protects your profit and helps you grow. Use it to plan smarter, price better, and push your business towards long-term success.
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