How to Perform a Breakeven Analysis

Accounts Management

Finding out what sales volume you need to achieve at least breakeven point is critical to managing your business's success.

Working out your breakeven point is a straightforward exercise once you know your variable and fixed cost figures.

Variable costs are those directly related to your sales levels in dollars or units sold. They include things like materials and supplies, commissions on sales, sales incentives or bonuses for employees and shipping costs.

Fixed costs are those that stay the same no matter what sales volume your business has. Things like rent, insurance, licenses, wages for permanent employees, interest on loans and operational expenses fall under fixed costs.

To determine your breakeven point, follow these steps:

Subtract your variable cost per unit from the sale price per unit.
Divide the resulting amount by the sale price per unit to give you a ratio — called your Contribution Margin Ratio.
Now divide your fixed costs by your Contribution Margin Ratio. The result is the sales volume you need to achieve your breakeven point.