Break-Even Point Calculator

How break-even is calculated

Each unit sold contributes Selling Price − Variable Cost, the contribution margin, towards the fixed costs. Once enough units have been sold to cover all of them, you've broken even: Break-Even Units = Fixed Costs ÷ Contribution Margin. Multiplying that by the selling price gives break-even revenue, and dividing the contribution margin by the price gives the contribution margin ratio: the share of each rupee of sales left over to cover fixed costs. Below the break-even point you are still paying off the fixed costs; above it, each extra unit adds its full contribution margin to profit.

Worked example: how many cups pay for an espresso machine?

The ROI, payback and depreciation guide follows a café that buys an espresso machine for ₹2,40,000, expects it to add ₹12,000 a month in profit, and plans to sell it for about ₹40,000 after 5 years. That guide asks how long the machine takes to pay back and what it returns. This page asks the question underneath both: how many extra cups does it have to sell? Suppose each cup sells for ₹150 and costs ₹50 in beans, milk, the cup and power. Those two figures are this example's assumptions; ₹100 of contribution a cup is what turns 120 extra cups a month into the guide's ₹12,000. They are the calculator's defaults, so the result above is this example.

• To recover the full price: 2,40,000 ÷ (150 − 50) = 2,400 cups, or ₹3,60,000 of coffee sales. The contribution margin is ₹100 a cup, 66.7% of the price. At 120 extra cups a month that takes 20 months, the same answer the Payback Period Calculator gives.
• To cover what the machine actually uses up: if it really does sell for ₹40,000 at the end, the cost to recover over its life is ₹2,00,000. Enter that as the fixed cost and the answer is 2,000 cups, ₹3,00,000 of sales. Over 60 months that is about 34 cups a month (2,000 ÷ 60 = 33.3, rounded up).
• The margin of safety: the café expects 120 extra cups a month and needs 34 to cover the machine's cost over its life. Sales could fall by more than 70% before the machine stopped paying for itself, which is the cushion a break-even figure is meant to show.

What a price cut does. Drop the price to ₹130 to compete with the café next door and the contribution falls from ₹100 to ₹80 a cup. Recovering ₹2,40,000 then takes 3,000 cups, 25% more, or 25 months at 120 cups a month. A 13% price cut needs 25% more volume because it comes entirely out of the margin, not out of the price as a whole. A ₹10 rise in the cost of milk and beans has exactly the same effect as a ₹10 price cut.

What counts as a fixed cost here

For a whole business, fixed costs are the monthly rent, salaries and other bills that don't change with sales, and the result is units per month. For one purchase, as in the example, the fixed cost is the purchase itself and the result is units over its life. Keep the two separate: put a month of rent and the machine's full price in the same box and the answer means neither. If the machine also needs a yearly service contract, add 5 years of it to the ₹2,40,000 before dividing.

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