Introduction to this document

Break-even point calculator

Being clear about the distinction between fixed and variable costs in your business will enable you to more accurately work out the break-even point of any given project. Use our calculator to help you do this.

Break-even point

The break-even point for your business is where fixed costs plus variable costs are equal to sales. Once you have identified your fixed costs, it's simple to quantify them. Variable costs depend on the level of sales so these need to be calculated together. Your variable costs will always include your cost of sales but you will also have identified others that are variable (indirect variable costs). Use our Break-Even Point Calculator to record fixed and variable costs separately, as well as doing the break-even calculation for you as follows:

Sheet 3. Tabulate the fixed costs.

Sheet 2. Tabulate the indirect variable costs, for example temporary staff, and calculate the relationship of these to sales.

Sheet 1. Start by establishing the percentage that cost of sales represents of your sales. The simplest way to do this is from your profit and loss account and the formula is cost of sales/sales x 100. Once you know the relationship between sales and variable costs (cost of sales and indirect variable costs), you can calculate the amount of sales you need to cover your fixed costs using our break-even point calculator.

Look for ways to lower the break-even point by increasing the margin on your sales. You could do this by raising prices (which may be difficult in your specific market) or by looking at ways to reduce your cost of sales and indirect variable costs.

fived and variable costs

Fixed costs are those that stay constant over a given time period despite fluctuations in the volume of production and sales. These normally include rent and rates, depreciation, accountancy costs and general management salaries.

Variable costs change in proportion to the volume of sales and production. These include the cost of materials, fuel and sales commissions.

Fixed and variable costs are not the same as direct and indirect costs. Direct costs can be attributable to particular sales, whereas indirect costs benefit sales in general. Direct and indirect costs can be either fixed or variable.