# Profitability threshold

Calculate your break-even point online from which you will start earning profits for your business or company.

With our calculator you will be able to to obtain the break-even point in a very simple way. All you have to do is indicate the fixed costs you will have per month, the variable costs that each unit of product sold may have, the price per unit and the number of units you expect to sell per month. With these data, click on the calculate button and you will know the break-even point and the amount of profit you will make.

## What is the break-even point?

As indicated earlier, the break-even point is the barrier from which we have covered our expenses of the business and we started to make a net profit.

Because of this, it is very important to always calculate the break-even point of a new business to avoid unpleasant surprises when we need to sell a huge number of units to make a profit.

## Formula for calculating the break-even point: The break-even point is calculated as follows by dividing the fixed costs by the difference obtained by subtracting the unit price minus the variable costs.

The fixed costs are those that are there month after month.. You will have to make a balance of what you spend on rent, electricity and electricity bills, internet, taxes, etc., and include them all in this concept.

The variable costs depend on the raw material of the product we are going to sell and is an expense that we recover with the sale of each unit.

## Example of break-even point Let's imagine that we want to set up a business selling premium cell phone cases in a small town so as not to shoot up the costs of renting the premises. Here is our data:

• Fixed costs: 4500 euros
• Price per unit: 30€.
• Variable costs: 5€.

How many cases do we need to sell to cover fixed costs and achieve profitability? Let's see it by calculating the dead center:

Punto muerto = 4.500€ / (30€ - 5€) = 180 unidades

This means that if we sell 181 units, we will begin to make a profit real.

With this data, you now have to sit down and think about whether you are capable of selling at least 180 cell phone cases per month just to avoid losses. Maybe you should consider:

• Selling online to reduce fixed costs (rental of premises)
• Reduce manufacturing costs
• Dismissing the idea

As you can see, the concept of deadlock is very simple but vital not to make the mistake of setting up a company thinking that we are going to do well if in reality we are not going to be able to cover the expenses generated by the activity.

## Profitability threshold in Excel with chart

Let's continue using the previous example of the cell phone case business but let's transfer it to Excel to elaborate a chart that allows us to clearly see how profits and expenses evolve as sales increase.

To do this, we open a new spreadsheet and place each variable in a different cell. You can follow our layout to match the cell references in the cells in the Excel formulas that we will use to calculate the breakeven point: We have already calculated the dead center in Excel, transferring the formula that we have seen to the cell distribution that we have done. In the screenshot above you can see it although we leave it here as well:

=C2/(C3-C4)

We will now draw up a table in which we can see the evolution of expenses and profits as a function of units sold: • In the units column we write the quantities that we believe appropriate to see the evolution correctly.
• In sales we will multiply the number of units sold by the price of each unit.
• In the cost column we will add the fixed costs plus the variable costs for the total units sold.
• Finally, profits are calculated by subtracting expenses from sales.

With the table already created, we generate the break-even graph in Excel: Now we have in a much more visual way how benefits and costs evolve as sales of the product take place.

Logically, we are always interested in the graph of the the growth rate of profits is much higher than the growth rate of costs..

We hope that all this breakeven information.