What is a Break-Even Point?
In business, the Break-Even Point is the exact moment when your total revenue equals your total costs (both fixed and variable). At this point, your business makes exactly zero profit and zero loss. Every sale you make after surpassing this point contributes directly to your profit.
How to Calculate Break-Even
To find your break-even point, you need three numbers:
- Fixed Costs: Expenses that do not change based on how much you sell (e.g., rent, salaries, insurance).
- Variable Cost Per Unit: The cost to produce or acquire one single unit of your product.
- Selling Price Per Unit: The price at which you sell that unit to customers.
Formula Verified
Official Calculation Formula
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Why this matters
Knowing your break-even point is critical for setting sales targets. If the break-even volume is unrealistically high, you may need to reduce your fixed costs or increase your selling price to make the business viable.