A short HubSpot YouTube tutorial (presented by AJ) that explains how to calculate a business’s break-even point in units and dollars, and how to estimate time-to-break-even from a sales forecast. Covers the unit contribution formula (unit price minus unit variable cost), multiplies break-even units by unit price for break-even dollars, and illustrates with a picture-frame store example.
Questions this video answers
$300,000
$120
$20
$100
3,000 frames
Chapters
Hi there, I'm AJ from HubSpot, and today I'm going to show you how to calculate break even point in your business. But before we get to that, don't forget to like this video and subscribe to our YouTube channel and post any questions or suggestions you have about breakeven in the comments below. Breakeven Point is one of the most important metrics for a new business to know. It's designed to calculate how long it will take, how much money you need to earn, and how much you need to sell for the business to cover its costs and become profitable. The breakeven formula is a bit multifaceted, so first I'll explain how to calculate breakeven in unit sales. This is calculated by dividing your fixed costs by the difference between unit sales price and unit variable costs. In other words, break even in units equals fixed cost divided by unit sales price minus unit variable cost. If you sell units at different price points, determine the average cost of one unit by looking at all the units sold or the projected units sold. As an example, let's say you open a picture frame store. Your fixed costs to open the business, the equipment, the building, and the renovations cost a total of $300,000. Your average frame sells for $120, and average variable costs for each frame total $20, the difference being $100. So if you divide your fixed costs of 300,000 by that $100, you end up with 3,000 frames as your break even point in units. To calculate your break even point in dollars, simply multiply this number of units by the unit sales price, in this case, $120. 3,000 times 120 equals $360,000, and that's your business's break even point in dollars. Any revenue made after that threshold starts to contribute to your profit. Lastly, if you want to know how long it will take to reach break even, consult your sales forecast to see how many units you intend to sell over a given period of time. If you think you'll sell 500 frames a month, that means it'll take six months for your business to break even in this example. And there you have it. How to Calculate Breakeven Point Simplified need some additional help calculating your breakeven point? Click the link in the description to learn more. Thanks again for watching and if you enjoyed this video. Please be sure to like it and subscribe to our channel and leave any tips or questions you have about calculating break even point in the comments below.
