Break-Even Point
The sales volume at which revenue equals costs.
The break-even point is the level of sales at which total revenue exactly equals total costs—the business neither makes nor loses money. It can be expressed in units sold or revenue dollars. Knowing the break-even point helps with pricing decisions, sales targets, and understanding how changes in costs or prices affect profitability.
Formula
Break-Even Point (units) = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit)Example
A coffee shop with $8,000 in monthly fixed costs and $2 profit per cup needs to sell 4,000 cups per month to break even—anything above that is profit.
Why It Matters for Your Business
Knowing your break-even point tells you the minimum sales needed to survive, helping you set realistic targets and evaluate whether a new venture is viable.
Practical Tips
- •Recalculate break-even whenever you change prices, add fixed costs, or see variable costs shift.
- •Use break-even analysis before launching new products to evaluate viability.
Related Terms
More Business Terms
Accounts Reconciliation
Ensuring account balances match between different records.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
Financial Statements
Reports summarizing financial performance and position.
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