The Break-Even Point Formula Explained
The break-even point formula is: BEP (units) = Fixed Costs / (Selling Price per Unit − Variable Cost per Unit). The denominator — price minus variable cost — is called the contribution margin per unit. For revenue-based break-even: BEP ($) = Fixed Costs / Contribution Margin Ratio, where the ratio = (Price − Variable Cost) / Price. Example: Fixed costs $15,000/month, price $75, variable cost $30. Contribution margin = $45. BEP = 15,000 / 45 = 334 units. In revenue terms: ratio = 45/75 = 0.6, so BEP = 15,000 / 0.6 = $25,000.