What Is Break-Even Analysis in Google Sheets?
The break-even analysis in Google Sheets helps determine the point at which total revenue equals total costs, resulting in neither profit nor loss. It is a valuable tool for businesses to understand their cost structure and sales targets. Calculating the break-even point helps businesses see how many units they have to sell to cover all fixed and variable costs.
This analysis can also be used to evaluate price changes or cost adjustments, to see how they impact profitability. For instance, in a business, the fixed costs are $10,000, and the variable costs per unit are $20. The selling price per unit is $30. Here we calculate the following:
- Contribution Margin per Unit: $30 – $20 = $10
- Break-Even Point in Units: $10,000 / $10 = 1,000 units
- Break-Even Point in Sales: $10,000 / ($10 / $30) = $30,000
The business must sell 1,000 units to achieve $30,000 in sales to cover all costs and reach the break-even point.
Key Takeaways
- Break-even analysis helps determine the number of units or sales required to cover all fixed and variable costs, meaning no profit or loss is made.
- The formula used for the break-even point is fixed cost divided by the difference between selling price per unit and variable cost per unit.
Break-Even Point (Units) = Fixed Costs / (Sales Price per Unit – Variable Costs per Unit).
- Google Sheets allows easy creation of break-even models with automatic calculations and dynamic charts to visualize cost and revenue trends.
- It is important to use correct cell references and ensure accurate categorization of fixed and variable costs to avoid errors in the analysis.
Syntax
There is no direct syntax or formula to perform a break-even analysis in Google Sheets.
We do so by calculating the point where revenue equals total costs, thereby resulting in neither a profit nor a loss.
Hence, the Break even analysis Google Sheets formula is:
Break-Even Point (Units) = Fixed Costs / (Sales Price per Unit – Variable Costs per Unit).
You can also calculate the break-even point in sales dollars using:
Break-Even Point (Sales Dollars) = Fixed Costs / Contribution Margin.
How To Do Break-Even Analysis in Google Sheets?
The following example shows how to use this formula to perform break-even analysis in Google Sheets.
Suppose a person wants to open a confectionery. His fixed costs will include the equipment required for the confectionery. It will also include the ingredients for the sweets sold, which comes to a total of $1,500.
Each sweet will cost $1 to make. He plans to sell them at $4.50. Let us perform the break-even analysis for the same to find how many sweets he must sell to break even.
Step 1: Let us enter all these details in a spreadsheet. These include the fixed costs, selling price per unit, and cost per unit in Google Sheets.
Step 2: We type the following formula into cell B4 to calculate the number of units he must sell to break even:
=B1/(B2-B3)
Step 3: Press Enter. You have just performed the Google Sheets break-even analysis.
To break even, i.e. achieve a profit of exactly zero dollars, he must sell around 428 units.
We can also calculate the total revenue, total cost, and total profit the person will earn by selling this many units:
The Total revenue =B4*B2
Total cost: =B1+(B4*B3)
The Total profit =B6-B5
We can also use all these formulas to change the selling price per unit in cell B2 to see how various prices affect the number of units he must sell to break even.
Suppose the selling price is $6 per unit, the total number of units will be:
The higher the selling price per unit, the greater the profit per sweet and the fewer number of sweets he must sell to break even.
Examples
Below, let us look at some examples of break-even analysis to determine the point at which total revenue equals total cost, meaning there is no profit or loss. These examples involve calculating fixed costs, variable costs, and sales prices to identify the number of units needed to break even.
Example #1 – Calculate the Minimum Sales Volume Needed for Profitability
In this example, let us consider a salesman selling a product with the following details.
- Fixed Costs = $5,000
- Variable Cost per Unit = $20
- Selling Price per Unit = $45
Here, we must calculate the minimum number of units the person must sell to break even.
Step 1: Open Google Sheets and in a new sheet, label the cells to organize your data.
Step 2: In cell B4, let us enter the following formula.
=B1/(B3 – B2).
The formula divides the fixed costs by the difference between the selling price and the variable cost.
Step 3: The formula gives the minimum number of units you need to sell to break even, that is, 200 units.
You have to sell 400 units to cover all your costs and start making a profit beyond that point.
Example #2 – Determine the Sales Target to Cover Startup Costs
Let us look up another interesting example where we must determine the sales target to cover startup costs using break-even . For this, we must calculate the break-even point. Here, we first identify the fixed costs which include rent, salaries, insurance, and so on, as $50,000. The variable cost changes according to the cost of raw materials, shipping, and so on. Here, it is $50. Next, we determine the selling price. It is $110 per unit.
Step 1: Enter all these details in a Google sheet.
Step 2: Calculate the Contribution Margin, which is the difference between the selling price per unit and the variable cost per unit.
Contribution Margin = Selling Price – Variable Cost
Step 3: Calculate the break-even point = Fixed Costs / Contribution Margin.
Round this up to the nearest whole number: 833 units.
Example #3 – Identify the Break-Even Point for a New Product Launch
In this example, a woman plans to launch a new product and want to calculate how many units she must sell to reach the break-even point. Let us see how to do it in Google Sheets.
Step 1: Open a new Google Sheet and enter the following details in Column A and Column B.
Step 2: Enter the following formula in cell B4 to calculate the break-even point:
=B1/(B3 – B2)
It calculates the number of units you must sell to cover both fixed and variable costs. Press Enter and review the result.
So, you need to sell 300 units to break even.
Step 3: Let us create a visual chart for the same. In column C, create a range of unit sales like 200, 300, etc up to 1000. Selling price of each unit is:
=C2 * $B$3
Calculate the total cost as well using the formula
=$B$1 + (C1 * $B$2) and drag it to the value 1000 in Column E.
Select the data and insert a line chart to visually see where revenue and cost lines intersect. Here, we can see it at 300 visually.
Important Things to Note
- Always ensure that your fixed and variable costs are separated; mixing them can lead to incorrect calculations and misleading results.
- Use absolute cell references (like $B$2) when copying formulas that involve constants like fixed cost or selling price, to avoid unintentional formula changes.
Frequently Asked Questions (FAQs)
Let us look at how the break-even analysis is useful in Google Sheets.
It helps determine the minimum sales required to avoid losses in a business.
The analysis enables us to make better pricing decisions and plan our budget.
You can also perform visual analysis using charts which help understand the results better.
You can make different assumptions for the selling price and check the profit, thereby helping small businesses evaluate the viability of their product.
Though the method is quite straightforward, it is prone to errors that should be avoided.
Do not confuse between the fixed and variable costs which may affect the break-even result.
Enter only numeric values to avoid the #VALUE error.
Use absolute references when using fixed values like the cost.
Account for all relevant costs during fixing the price such as rent, marketing and so on.
To perform the break-even analysis, follow these steps.
First, enter your fixed costs, variable cost per unit, and selling price per unit.
Next, use the formula, =(Fixed Cost)/(Selling Price – Variable Cost) to get the break-even unit value.
You can also create a table showing units sold vs. total cost and total revenue.
Plot the values using a line chart to find the intersection point. This gives you a visual representation of the break-even point.
Download Template
This article must help understand Break-Even Analysis in Google Sheets with its formulas and examples. You can download the template here to use it instantly.
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