Calculating Break-Even Revenue

To calculate break-even dollars - the amount of revenue needed to cover both fixed and variable costs so your business neither makes nor loses money - use the following formula:

(Fixed Costs) / (1 - (Variable cost per unit/Selling Price per unit))

= Revenue to Break-even

Example: Calculating Break-Even Revenue
To determine an appropriate hourly rate (revenue) to charge for a consultant or service business, using the break-even revenue formula, plug in total fixed costs of $30,000, variable cost-per-unit of $15 (hourly pay to consultant), and unit selling price of $30 (per hour of consulting). The formula yields a break-even annual revenue of $60,000.

$30,000 / (1 - ($15/$30))

= $60,000

So, this company needs revenues of $60,000 just to cover costs. If it doesn't have enough business at these rates, it loses money by being in business. If it makes more than $60,000 in revenue, it's making money.

 

Pricing: Introduction
The Starting Point: Calculating Break-Even
Calculating Break-Even Revenue
Calculating Break-Even Units
Pricing for Profit: Cost-Based Pricing
Pricing for Profit: Value-Based Pricing
Discounts
Sample Revenue Planning Worksheet for Consultants