Free tool
Break-even point calculator
Find the sales you need each month to cover your costs, in rand or in units. Below it: the break-even formula, a worked example, and three ways to bring the number down.
Your break-even
- Break-even sales
- R135,000
- A month, to cover all your costs
- Contribution margin
- 60%
- What each sale leaves after its own costs
- Margin of safety
- 25%
- How far sales can fall before a loss
- Sales for your target
- R185,000
- For R30,000 of profit a month
You need R135,000 of sales a month to cover your costs. At R180,000 you're R45,000 above it, a margin of safety of 25%.
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The break-even point formula
Break-even is where sales cover every cost and profit is nil. Each sale first pays for its own costs; what's left, the contribution, goes towards the fixed costs. Once they're covered, the rest is profit.
In units
How many do we need to sell?
Fixed costs ÷ (selling price − variable cost per unit)
The coffee cart: R18,000 ÷ (R45 − R15) = 600 cups a month. Round up: nobody sells part of a cup.
In rand
How much do we need to sell?
Fixed costs ÷ contribution margin ratio
The ratio is (sales − variable costs) ÷ sales. Use this when you sell many things at different prices, as most businesses do.
Fixed or variable?
Getting this split right matters more than the arithmetic. Ask one question of each cost: does it rise when we sell more?
Variable: rises with sales.
Stock and materials, labour paid by the job, delivery and courier costs, card and payment fees, sales commission.
Fixed: there whatever you sell.
Rent, admin and management salaries (yours too), insurance, software and phones, accounting fees, vehicle finance.
Some costs are a bit of both, like a phone contract with a usage charge. Split them if you can, or put them where most of the cost sits.
How to calculate the break-even point: a worked example
A printing business, made up for this example, has a normal month with R180,000 of sales and wants to make R30,000 of profit.
Split the costs.
Paper, ink and courier costs rise with sales: R72,000a month. Rent, salaries, the lease on the press and insurance don't: R81,000.
Contribution: R108,000, or 60%.
R180,000 of sales less R72,000 of variable costs. Of every R100 of sales, R60 is left to pay the fixed costs.
Break-even: R135,000 of sales a month.
R81,000 ÷ 0.60 = R135,000.
Margin of safety: 25%.
Sales are R45,000 above break-even, so they could fall by 25% before the business makes a loss.
Sales for R30,000 of profit: R185,000.
(R81,000 + R30,000) ÷ 0.60: the target is just another fixed cost to cover.
You need R135,000 of sales a month to cover your costs. At R180,000 you're R45,000 above it, a margin of safety of 25%.
Three ways to bring break-even down
Each lever on its own, 5% at a time, for the printing business. Try your own in the calculator.
Raise prices.
A 5% price rise on the same work moves break-even from R135,000 to R130,846 a month.
Lower the cost of each sale.
Paying 5% less for paper, ink and courier moves break-even from R135,000 to R130,645 a month.
Cut fixed costs.
Taking 5% off rent, salaries and the rest moves break-even from R135,000 to R128,250 a month.
Before VAT or after?
If your business is VAT registered, use amounts before VAT on both sides: the VAT on sales belongs to SARS and the VAT on costs comes back to you. Not registered? Use your costs including VAT, because you can't claim it back.
Your break-even moves whenever prices, wages or rent change.
Konzult Live keeps it in view: a live dashboard, a cash forecast and time with us before big decisions.
From R7,500 a month, after a First Look at your books.
Profit margin calculatorFree cash flow forecast templateWhat are management accounts?
Questions about break-even
- What is the break-even point?
- The level of sales where income covers every cost, so the business makes neither a profit nor a loss. Below it you lose money; above it each sale adds to profit.
- What is the break-even point formula?
- In units: fixed costs ÷ (selling price per unit − variable cost per unit). In rand: fixed costs ÷ contribution margin ratio, where the ratio is (sales − variable costs) ÷ sales.
- How do I calculate the break-even point in units?
- Take the variable cost of one unit off its selling price to get the contribution per unit, then divide your fixed costs by it. A coffee cart with fixed costs of R18,000 a month, selling at R45 a cup that costs R15 to make, needs to sell R18,000 ÷ R30 = 600 cups a month.
- What is contribution margin?
- What a sale leaves after its own variable costs, to pay for fixed costs and then profit. As a ratio it's (sales − variable costs) ÷ sales: a ratio of 60% means R60 of every R100 of sales goes towards fixed costs.
- What is the margin of safety?
- How far sales can fall before the business makes a loss: (sales − break-even sales) ÷ sales. Sales of R180,000 against a break-even of R135,000 give a margin of safety of 25%.
- Are salaries a fixed or a variable cost?
- Usually fixed: you pay them whatever you sell. Labour paid by the job or the hour, overtime for extra work and sales commission are variable, because they rise with sales.
- Does break-even include my own salary?
- It should. Count your salary or regular drawings as a fixed cost. Otherwise break-even shows where the business covers its costs, but not you.
- Should I use amounts with or without VAT?
- Without VAT, if your business is VAT registered: divide amounts that include 15% VAT by 1.15. If you're not registered, use your costs including VAT, because you can't claim it back.
Know the number your business has to beat.
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