How to Calculate Your Breakeven Point

You need to keep this figure as low as possible. But do you know how to calculate the breakeven point when you sell multiple products?

Q: I understand how a one-product company calculates its breakeven point, but how is the calculation done when you sell multiple products? My firm sells two products, chairs and bar stools, for $50 per unit. The variable costs are $25 for each chair and $20 for each bar stool. Fixed costs for the firm are $20,000 per month. If the sales mix is 1:1 (one chair sold for every bar stool sold), what is the breakeven point in dollars of sales and in units of chairs and bar stools?

A: In a previous article, I described this simple formula for calculating the breakeven point: breakeven = fixed costs /gross margin percentage, where fixed costs are recurring monthly expenses that do not vary with sales (such as rent, salaries and so on) and gross margin percentage of a product means its profit divided by its price.

That simple calculation assumed a one-product company; therefore, it was easy and straightforward to determine the gross margin of a particular product. However, the calculation gets a little more complex when you throw additional products into the mix. The answer to your question lies in the calculation for computing the gross margin for multiple products. The breakeven calculation itself does not change.

Instead of using the simple gross margin percentage, you must compute the "weighted average" gross margin percentage, which is calculated as the sum of the gross margin percentage for each product multiplied by its percentage of sales. Returning to your example, the chair has a gross margin of 50 percent: (50-25) /50. The stool has a gross margin of 60 percent: (50-20) /50. Each product accounts for 50 percent of the unit sales of the firm (meaning a 1:1 sales mix). Therefore, the weighted average gross margin is:

  • Chair: 50% x 50% = 25%
  • Stool: 60% x 50% = 30%
  • Weighted average gross margin = 55% (25% + 30%)

Then, you would use the weighted average percentage in the breakeven formula as follows: breakeven = $20,000 /.55 = $36,363. To calculate the unit sales of each product, take the breakeven sales, multiply by the product's sales mix, and then divide by its price as follows:

  • Stools to sell = $36,363 x 50% /$50 = 363 stools
  • Chairs to sell = $36,363 x 50% /$50 = 363 chairs
Do you regularly generate an income statement for your business? If not, now's a good time to start. Click here for a rundown of what it should include.

Leading experts offer financial management advice in Bigwig Briefs: Become a CFO--The Real World Intelligence to Become a CFO or to Become a Better CFO or Financial Professional.

From the above example, we can see how changing the sales mix can affect the breakeven point. For example, if the above firm were to sell 70 percent stools and 30 percent chairs, the breakeven point would be reduced to $35,088 because the weighted average gross margin increased to 57 percent. Conversely, if the firm where to sell 30 percent stools and 70 percent chairs, the breakeven point would be increased to $37,736 because the weighted average gross margin decreased to 53 percent.

Your goal as a business owner is to keep the breakeven point as low as possible. Product price, product costs, product volume and fixed cost all play a role in determining the breakeven point as well as the ultimate success of any business.

Ian Benoliel is the CEO of Inc., a developer of budgeting, manufacturing and management software for entrepreneurial businesses. NumberCruncher combines its accounting and finance expertise with technological know-how to deliver software that is affordable and easy to use, yet sophisticated and powerful. More information on the NumberCruncher's products and services is available at Ian has nearly two decades of business, accounting and financial consulting experience. He has advised corporations on business plans, financial projections and accounting computer systems.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

Related Topics

Editor's Pick

Have More Responsibilities at Work, But No Pay Bump? Use This Script to Get the Raise You Deserve.
Black and Asian Founders Face Opposition at All Levels — Here's Why That Has to Change

Invest in Yourself: 10 Things Every Working Woman Should Do This Year

When striving for success, it is easy to forget about your mental and physical health. But without health, you cannot fully succeed. Follow these ten lifestyle strategies for success in your personal and professional life.

Thought Leaders

5 Small Daily Habits Self-Made Millionaires Use to Grow Their Wealth

We've all seen what self-made millionaires look like on TV, but it's a lot more subtle than that. Brian Tracy researched what small daily habits these successful entrepreneurs adopted on their journey from rags to riches.


5 Internal People Every CEO Needs

No leader should ever find themselves alone in their struggles and decisions. Leadership is about having a team of people to provide help and support through the difficult moments of the hour.

Business News

iPhones Have Shot Up In Price. But CEO Tim Cook Thinks Customers Will Still Open Their Wallets -- Here's Why

The head of the multi-trillion dollar company faced a question about iPhone prices at Apple's earnings call on Friday.


4 Alternatives to Meetings Entrepreneurs Should Embrace in 2023 to Win Back Their Time

"This meeting could've been an email" is now more applicable than ever before as the number of meetings keeps increasing, only to reduce progress and take away valuable working hours from employees. It's time entrepreneurs embrace alternatives to traditional meetings in their businesses this year.