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Cash flow management

Break-even point calculation

Your break-even point indicates the minimum level of sales or income that you need to meet overhead expenses and achieve your profit margin.

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In this article

Consider your prices and costs

Your break-even point is an important calculation to help you work out if your prices are set correctly, and that you have enough demand to cover your fixed costs. 

Depending on the type of business you’re in, the break-even calculation can be based on your overall sales, or on each individual product line or major item.  

How to calculate your break-even point

We calculate the break-even point of your business by dividing your total overheads for the year by your gross profit margin for the year. 

Overheads ÷ gross profit margin = break-even level of sales

This calculation assumes the gross profit margin remains the same across all business activities. In this calculation we have defined overheads to include costs that cannot be directly attributable to a sale but are incurred to keep the business running, e.g. accounting costs, advertising, insurance, rates.

Example

If your total overheads for the year are $12,000, and your gross profit margin for the year is 20% your break-even point is $60,000.

12,000 ÷ 20% = 60,000

Gross profit margin calculation

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Important information

We’ve provided this material as a complimentary service. It is prepared based on information and sources ANZ believes to be reliable. The content is information only, is subject to change, and isn’t a substitute for commercial judgement or professional advice, which you should seek before relying on it. To the extent the law allows, ANZ doesn’t accept any responsibility or liability for any direct or indirect loss or damage arising from any act or omissions by any person relying on this material.

ANZ tools, templates and calculators are only some of many ways to analyse a business or industry to assist your planning and business decision making. You should seek the assistance of your business advisor or accountant when either planning for or analysing your business' performance. The accuracy of the output from the calculation is subject to the accuracy of the information you provided. To the extent permitted by law, ANZ makes no warranty and has no liability, in respect of your use of and reliance on these tools.

Please talk to us if you need financial advice about a product or service. See our financial advice provider disclosure at ANZ.co.nz/fapdisclosure.

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