Guide to establishing the breakeven point

The breakeven point is the point at which total revenue equals total costs, meaning the business neither makes a profit nor incurs a loss. Calculating this helps you understand how many units you need to sell to cover all costs.

Steps to calculate the breakeven point

1. Identify fixed costs:
   • Fixed costs are expenses that remain constant regardless of sales volume (e.g., rent, salaries, utilities).
2. Determine variable costs per unit:
   • Variable costs change with production levels, such as raw materials, packaging, and direct labour.
3. Set the selling price per unit:
   • Determine the price at which each unit will be sold.
4. Calculate the contribution margin per unit:
   • Contribution margin = Selling Price per Unit - Variable Cost per Unit
   • This represents the profit from each unit after covering variable costs.
5. Calculate the breakeven point in units:
   • Breakeven Point (Units) = Fixed Costs / Contribution Margin per Unit
6. Calculate the breakeven point in revenue:
   • Breakeven Revenue = Breakeven Point (Units) × Selling Price per Unit

Example calculation

Let's use these example values to find the breakeven point:

• Fixed Costs: R30,000
• Variable Cost per Unit: R50
• Selling Price per Unit: R150
• Contribution Margin per Unit:
  R150 (Selling Price) - R50 (Variable Cost) = R100
• Breakeven Point (Units):
  R30,000 (Fixed Costs) / R100 (Contribution Margin) = 300 units
• Breakeven Revenue:
  300 units × R150 = R45,000

This example shows that the startup needs to sell 300 units to cover all costs, reaching R45,000 in revenue to break even.

Blank template for breakeven calculation

Description	Value (R)
Fixed Costs
Variable Cost per Unit
Selling Price per Unit
Contribution Margin per Unit
Breakeven Point (Units)
Breakeven Revenue

Completed example

Description	Value (R)
Fixed Costs	R30,000
Variable Cost per Unit	R50
Selling Price per Unit	R150
Contribution Margin per Unit	R100
Breakeven Point (Units)	300
Breakeven Revenue	R45,000

This framework will allow you to adjust figures based on your startup's actual costs and pricing, giving a clear understanding of the sales needed to achieve the breakeven point.