How to calculate the self-employed break-even formula

  • 2 min read
  • 3 Oct 2023
break-even formula

Break-even formula. What is it? And how do you calculate it? Looks like we’ve got some lingo to unpack here folks. 

Luckily, you can think of us as your very own self-employed dictionary. 💁🏻‍♀️ So, let’s get this break-even breakdown underway.

What do we mean by break-even?

The break-even we’re talking about is the financial lingo for when a business reaches the point where its profits are equal to its costs. So, if your business breaks even, it makes neither profits nor losses.

Sadly, we’re not talking about everyone’s favourite ‘in their feels’ song by ‘The Script’. 🎤

Your costs may include some like these:

Rent 🏠Transport 🚗
Electricity ⚡Salaries 💸
Equipment 📐Uniforms 👩‍⚕️

What’s the break-even formula? 

The break-even formula is your fixed costs divided by your sales price per unit minus your variable costs per unit. Using the break-even formula allows businesses to determine the minimum output that must be exceeded for a business to profit. 

Let’s dig a little deeper. Here’s the formula again:

Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

Let’s break even more ground on the break-even formula: 

  • Fixed costs – things that are constant whatever the amount of goods produced, such as rent 🏡

  • Sales price per unit – the amount of money a buyer will pay for one unit of a product 📦

  • Variable costs per unit – the amount of labour, materials, and other resources required to produce your product 🧵

It’s definitely useful to know and understand. 😅

How do I calculate the break-even formula?

We were hoping someone would ask this question. 😏

Here’s an example:

Remember, the formula you need to use is:

Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

So, let’s say:

  • Your fixed costs are £9,000 👛
  • Your sales price unit is £2 🛍️
  • Your variable costs per unit are £0.50 💸

£9,000 ÷ (£2-£0.50) = 6,000 units

And, that’s how you use the break-even formula folks! 

How can I keep track of my income and expenses?

To use the break-even formula, you’ll need to keep track of your income and expenses. We know, we know, it’s a pain. 🙄

If only there was something to make it easier… 🤔

Of course, you could always use our free bookkeeping tools. We have all your income and expense needs covered:

  • Expenses – no more manual data entry from bags of receipts. Our AI-powered data extraction tool will pull all your business spending straight from your receipts. 
  • Accounting overview – track all your business income and expenses, all at once. No more spreadsheets, no more lengthy admin. 

But, that’s not all. Find out about the rest of our tools here 👇

No more ‘prayin’ to a God that you don’t believe innnn 🎵

Oops, we couldn’t resist the song reference. 😆 But, seriously. No more looking elsewhere. 

Use our free bookkeeping tools to keep track of your income and expenses, calculate whether you’ll break even, and boss your business all round. 🙌

🚀 Boss your bookkeeping – for free

Manage your self-employed finances in one place with 10/10 bookkeeping tools.

  • Save money, time and effort
  • Create and personalise invoices
  • Track all your income and expenses in one place
  • And more!