Q: How do I find my break-even sales point?
A: Your break-even point is the level of sales that produces neither profit nor loss. You can calculate your break-even sales using the following formulas:
Gross Profit Margin = Sales – Variable Costs
Gross Margin Percentage = Gross Profit Margin / Sales
Break-Even Sales = Fixed Overhead / Gross Margin Percentage
For example, if you generate $100 in sales and your variable costs are $40, you have a gross profit margin of $60 ($100 – $40), or 60% ($60 / $100). But if you have $50 in fixed overhead, your net profit is only $10 ($60 – $50). To determine your break-even point, divide your fixed overhead by the gross margin percentage:
$50 / 60% = $83
This means that if you generate less than $83 in sales, you will lose money instead of making money. By defining and lowering your variable and fixed costs, you can improve your overall profit structure and lower your break-even sales point.
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