What is the break-even point?
The break-even point (BEP) is the level of sales at which total revenue exactly equals total cost — no profit, no loss. Below it every unit sold still leaves you in the red; above it every additional unit adds its full contribution margin to profit. Knowing your BEP is essential before opening a clinic, a restaurant, a coaching centre, a manufacturing line or launching a new product.
Formulas
- Contribution per unit = Selling Price − Variable Cost per unit
- Contribution Margin Ratio = Contribution ÷ Selling Price
- BEP (units) = Fixed Costs ÷ Contribution per unit
- BEP (₹ revenue) = Fixed Costs ÷ Contribution Margin Ratio
- Units for target profit = (Fixed Costs + Target Profit) ÷ Contribution per unit
- Margin of Safety % = (Actual Sales − BEP Sales) ÷ Actual Sales
Worked example
A diagnostic lab has fixed monthly costs of ₹3,00,000 (rent, pathologist salary, machine EMI, AMC). Each test is billed at ₹500 and consumes ₹300 of reagents and consumables. Contribution per test is ₹200, CM ratio 40%. BEP = 3,00,000 ÷ 200 = 1,500 tests per month, i.e. ₹7,50,000 revenue. To earn ₹1,00,000 profit the lab needs (3,00,000 + 1,00,000) ÷ 200 = 2,000 tests. If it expects 2,000 tests, its margin of safety is 25% — sales can fall by a quarter before losses begin.
Fixed vs variable cost
Fixed costs stay the same regardless of volume within a range: rent, salaries, insurance, loan EMIs, software subscriptions, depreciation. Variable costs move with each unit: raw material, packaging, freight, commission, payment-gateway fees, consumables. Semi-variable items like electricity should be split — put the minimum demand charge in fixed and the per-unit consumption in variable.
Reading the chart
The tool plots revenue, total cost and fixed cost against units sold. The point where the revenue line crosses the total-cost line is your BEP. A steep revenue line relative to cost means high operating leverage — profits grow fast after BEP but losses are equally sharp below it.
Uses
- Deciding minimum order quantity or minimum monthly footfall before signing a lease
- Evaluating whether a price cut (which lowers contribution) is worth the extra volume
- Bank project reports and CMA data, which always include a break-even analysis
Frequently Asked Questions
What happens if variable cost is higher than selling price?
There is no break-even: each sale increases the loss. The tool will flag this. You must either raise the price or cut per-unit cost.
Is break-even calculated with or without GST?
Without. Use the GST-exclusive selling price and GST-exclusive costs (net of input credit) so both sides are on the same basis.
How do I handle multiple products?
Use a weighted-average contribution per unit based on your expected sales mix, or compute BEP in rupees using the overall contribution margin ratio from your P&L.
What is a good margin of safety?
Above 25–30% is comfortable for most small businesses. Under 10% means a small dip in sales pushes you into loss.
Why do banks ask for break-even in project reports?
Lenders compare BEP to projected capacity utilisation. A BEP at 40–50% of capacity is viewed as a safe project; one near 80% is risky.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.