Last updated
What Is Break-Even Analysis?
Break-even analysis determines the point at which total revenue equals total costs — the point where a business neither makes a profit nor a loss. It's a fundamental tool for business planning, pricing decisions, and evaluating the viability of new products or ventures.
Break-Even Formula
Text
Break-Even Point (units) = Fixed Costs / (Price per Unit - Variable Cost per Unit)
Break-Even Point (revenue) = Fixed Costs / Contribution Margin Ratio
Where:
Contribution Margin = Price - Variable Cost
Contribution Margin Ratio = Contribution Margin / Price
Example:
Fixed costs: $10,000/month
Price per unit: $50
Variable cost per unit: $30
Contribution margin: $50 - $30 = $20
Break-even: $10,000 / $20 = 500 units/monthBreak-Even Chart Data
JavaScript
function breakEvenAnalysis(fixedCosts, pricePerUnit, variableCostPerUnit) {
const contributionMargin = pricePerUnit - variableCostPerUnit;
if (contributionMargin <= 0) throw new Error('Price must exceed variable cost');
const breakEvenUnits = fixedCosts / contributionMargin;
const breakEvenRevenue = breakEvenUnits * pricePerUnit;
const cmRatio = contributionMargin / pricePerUnit;
return {
breakEvenUnits: Math.ceil(breakEvenUnits),
breakEvenRevenue: breakEvenRevenue.toFixed(2),
contributionMargin: contributionMargin.toFixed(2),
cmRatio: (cmRatio * 100).toFixed(1) + '%'
};
}
console.log(breakEvenAnalysis(10000, 50, 30));
// { breakEvenUnits: 500, breakEvenRevenue: '25000.00', ... }