Break-even Analysis Calculator

Break-Even Point = Revenue equals Total Costs (Fixed + Variable), zero profit/loss. Formula: BEP (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). Example: Fixed Costs ₹5L (rent, salaries), Sell product at ₹500, Variable Cost ₹300/unit. BEP = ₹500k / (₹500 - ₹300) = 2,500 units. Must sell 2,500 units to BREAK EVEN. Unit 2,501+ = pure profit. WHY CRITICAL: (1) Determines minimum sales target, (2) Helps price products, (3) Shows business viability (if BEP = 10,000 units but market capacity = 5,000, business NOT viable), (4) Investors ask BEP first (shows when business stops burning cash). Low BEP = Low risk, easier profitability.

Fixed Costs = Remain constant regardless of production volume. Examples: Rent (₹50k/month), Salaries (₹3L/month), Insurance (₹20k/month), Depreciation, Office utilities. Total Fixed Costs = ₹5L/month (whether you produce 100 or 10,000 units). Variable Costs = Change directly with production. Examples: Raw materials (₹100/unit), Packaging (₹20/unit), Direct labor (₹50/unit if paid per piece), Shipping (₹30/unit). Total Variable = ₹200/unit. Produce 1,000 units → Variable Cost ₹2L. Produce 5,000 units → Variable Cost ₹10L. SEMI-VARIABLE COSTS (tricky): Electricity (₹10k base + ₹5/unit), Storage (₹20k for 0-5000 units, ₹40k for 5001-10,000 units). For BEP, classify as fixed OR break into fixed component + variable component.

Contribution Margin = Selling Price - Variable Cost per Unit. It's the amount each unit contributes toward covering fixed costs. Example: Sell at ₹500, Variable Cost ₹300 → Contribution Margin ₹200/unit. Higher contribution margin = Lower BEP. BEP = ₹5L Fixed / ₹200 Contribution = 2,500 units. If you increase price to ₹600 → Contribution ₹300 → BEP = ₹5L / ₹300 = 1,667 units (33% fewer sales needed). Contribution Margin Ratio = (Contribution / Selling Price) × 100 = (₹200 / ₹500) = 40%. Means 40% of each sale goes toward profit (after covering variables). CRITICAL for pricing: Low contribution (under 30%) = Need very high volume. High contribution (50%+) = Profitability at lower volumes.

4 Strategies: (1) Reduce Fixed Costs: Negotiate lower rent (₹50k → ₹30k saves ₹20k monthly), outsource instead of hiring (cut ₹1L salary), work from home (cut ₹50k office rent). Example: Fixed ₹5L → ₹3L, BEP drops from 2,500 to 1,500 units (40% reduction). (2) Increase Selling Price: ₹500 → ₹600, BEP from 2,500 to 1,667 units. Risk: Customers may not accept. (3) Reduce Variable Costs: Cheaper suppliers (₹300 → ₹250), bulk discounts, automation. BEP = ₹5L / (₹500-₹250) = 2,000 units. (4) Increase Contribution Mix: Sell higher-margin products. Product A: 30% margin, Product B: 50% margin. Focus on B. BEST COMBINATION: Cut fixed 20% + reduce variable 10% + increase price 10% → BEP drops 50-60%.

BEP Revenue = BEP Units × Selling Price per Unit. OR: BEP Revenue = Fixed Costs / Contribution Margin Ratio. Example: Fixed ₹5L, Selling Price ₹500, Variable ₹300. Contribution Margin Ratio = (₹200/₹500) = 40%. BEP Revenue = ₹5L / 0.4 = ₹12.5L. Must generate ₹12.5L revenue to break even (2,500 units × ₹500 = ₹12.5L). Useful for: (1) Multi-product businesses (can't calculate units easily), (2) Service businesses (no clear 'unit'—use billable hours or projects), (3) Monthly targets (need ₹12.5L sales this month to cover costs). Track monthly: If sales ₹8L = ₹4.5L below BEP = ₹4.5L loss.

YES for accurate financial BEP. Depreciation = Non-cash expense but REAL cost (machinery wears out, must be replaced). Example: Buy ₹10L machine, 5-year life → Depreciation ₹2L/year (₹16.7k/month). Add to fixed costs. Amortization = Similar for intangible assets (software licenses, patents). CASH BEP vs ACCOUNTING BEP: Cash BEP = Excludes depreciation (shows when cash flow positive). Accounting BEP = Includes depreciation (shows when truly profitable). Example: Fixed ₹5L, Depreciation ₹2L → Total ₹7L. Cash BEP = 2,500 units (₹5L / ₹200). Accounting BEP = 3,500 units (₹7L / ₹200). Cashflow positive at 2,500 units, but not 'profitable' till 3,500 units. For INVESTORS: Use accounting BEP. For DAY-TO-DAY operations: Track cash BEP (more urgent).

Weighted Average Contribution Margin method. Example: Product A (₹500 price, ₹300 variable, 60% of sales volume). Product B (₹1,000 price, ₹700 variable, 40% of sales). Contribution Margin A = ₹200, B = ₹300. Weighted Avg Contribution = (₹200 × 0.6) + (₹300 × 0.4) = ₹120 + ₹120 = ₹240. Fixed Costs ₹5L → BEP = ₹5L / ₹240 = 2,083 total units (1,250 of A + 833 of B based on mix). CRITICAL: BEP very sensitive to product mix. If actual sales = 80% B (high margin), you break even faster. If 80% A (low margin), takes longer. Track: (1) Sales mix % by product, (2) Adjust BEP monthly based on actual mix.

Target: 3-6 months of sales to reach BEP (achievable, low risk). 12-18 months = Acceptable (capital-intensive businesses like manufacturing). 24+ months = High risk (need deep pockets, investor backing). Example: SaaS startup, BEP ₹10L/month revenue. Month 1: ₹1L revenue. Month 6: ₹10L+ revenue → BROKE EVEN in 6 months (excellent). Manufacturing: BEP ₹50L/month, Month 1: ₹5L, Month 18: ₹50L → Acceptable (high fixed costs in factories). CRITICAL: Low BEP = faster time to profitability = less funding required. Investors prefer under 12-month BEP timeline. If BEP greater than 24 months, restructure business model (reduce fixed costs, increase margins, rethink pricing).

3 Pricing Strategies: (1) Penetration Pricing (low price to gain market share): ₹400 price, ₹300 variable → Contribution ₹100 → BEP = ₹5L / ₹100 = 5,000 units. HIGH volume needed. (2) Competitive Pricing (market rate): ₹500 price → BEP 2,500 units. Moderate volume. (3) Premium Pricing (high price, brand value): ₹800 price → Contribution ₹500 → BEP = 1,000 units. LOW volume, high margins. TRADE-OFFS: Penetration = High BEP risk (must achieve 5,000 sales or lose money). Premium = Low BEP (safer) BUT limited market (not everyone pays ₹800). DYNAMIC PRICING: Start premium (₹800), capture early adopters (500 units), then drop to ₹600 for mass market (covers fixed costs faster, penetrate wider).