# How to Calculate Your Business's Balance Point

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## What is the Point of Equilibrium?

The break-even point is the combination of key values ​​that will show you the amount of monthly revenue sufficient to cover all your fixed and variable costs. It is a calculation to find out from what point the company manages to pay and goes on to make a profit.

### When to use break-even?

Estimate the breakeven as accurately as possible is the best way to know if the business plan of the company to stand. In other words, you will find out exactly how much you need to sell each month (and at what price) to get the balance - or break even, in the English term.

### How to calculate the Point of Equilibrium?

Before you begin, you need to determine some starting values, such as:

1. Unit price per sale: how much you charge for each product or service. Here, for example, we enter a value of \$ 120 and we sell, in the month, 45 units.

2. Variable costs per unit: is all expense that is levied on the product or service. Below we determine the value of raw material costs, taxes, commissions and others. We arrive at a cost of \$ 71,00 per unit.

3. Fixed costs by period: are those that have no relation to the production itself, but are necessary for the maintenance of the company. Wages, pro-labor, water, electricity and telephone are just a few examples.

## How to interpret the Point of Equilibrium?

By adding variable costs to fixed costs and dividing by the final price of the product it is possible to determine the minimum number of minimum units to be sold. In the case of our example, it would be the approximate 54 (53,29) units. That is, in order for the operation to be in balance and not of that loss, it would have been necessary to have sold at least nine more units. From 55a the company of the example would be profitable.

Calculating the break-even point is a real management tool. It will give you an excellent idea of ​​the costs involved in your business and the level of sales you will need to generate to cover your costs - which in turn could affect your entire business strategy.

Was the importance of this analysis clear? At LUZ, we offer a spreadsheet ready in Excel for to calculate the break-even point of your company!

1. Hi Carlos, you can use the sales price compared to the purchase price of the products you sell to find the contribution margin of each one. It is possible to make generalizations to arrive at the end result or establish weights for products that sell more compared to others.

2. Hello. A question. The above example was given with a fixed price product. In my case I have several items of various prices where I do not know which average value (grocery store). I would like to know how much I have to sell monthly, using my average margin, to be able to pay the fixed bills. Would you help me?

3. Variable costs per unit are those that occur only if that service is provided. For example, in a consultancy, expenses that occur when the consultant travels, hosts or has expenses related to the project in which it is allocated are considered variable costs. Now, payment for software or other items that will occur independently if the service happens or are not considered fixed expenses (even though they may vary in value from one month to the next)

4. Dear, I have a question about the definition of variable costs for a service company.
What do I consider as variable costs in this case?
Grateful for the attention.
James

5. Hi Andrigo, as this post is a bit old, I do not have the calculation memory here, but it was probably an average made of the direct costs of each product marketed by its sales projections

6. Dear, would you be able to tell me about the cost of \$ 71,00 that appears in "2 - variable costs per unit" ... I made some calculations but I did not find it. THX

7. Hi, Rodrigo, everything good?

What details do you believe have been missing? How do you think this article could get more complete?

8. I did not find the explanation clear, missing details, sorry.