## What is a break-even point?

A break-even point (BEP) is the point at which a business’ total costs equal its total revenue. This means that the business is neither making a profit nor experiencing a loss. At the break-even point, a business is operating in exactly the same way as it would if it were not making a profit. The only difference is that it is breaking even, rather than losing money. If the business is operating above the break-even point, it will be profitable, whilst if it is operating below the break-even point it will be making a loss.## Why is a break-even point important?

The break-even point is an important metric for business owners to understand, as it shows when their business will start to make a profit. After reaching the break-even point, the business will be making a profit on each unit sold. Knowing your break-even point is essential for making informed business decisions, such as pricing products and deciding on production levels. If the break-even point is too high, the business may not be able to cover its costs with sales and will need to find ways to reduce expenses or increase revenue. Conversely, if the break-even point is too low, the business may be leaving money on the table by not charging more for its products. There are a number of factors that can affect a business’ break-even point, such as the cost of goods sold, overhead costs, and sales volume. It is important for business owners to track these numbers as closely as possible, as this will help them stay on top of their expenses and revenue.## Calculating your break-even point

In order to calculate your break-even point, you will first need to know the fixed and variable costs of the business. Fixed costs are those expenses that remain the same even when the company experiences a change in sales. These fixed costs are also known as overhead. Variable costs are expenses that increase or decrease depending on how many items the business sells. There are two different ways of calculating your break-even point: either in units sold or sales revenue. Let’s take a look at the break-even formula for each of these measures.### Break-even formula – units sold

To calculate how many units you need to sell to break-even, you will first need to subtract the variable cost per unit from the sales price per unit. You will then divide the fixed costs of your business by this number. So, here’s the formula for calculating your break-even point by units sold.**Break-even point (units) = fixed costs / (sales price per unit – variable cost per unit)**

### Break-even formula – sales revenue

If you would prefer to calculate your break-even point based on the sales revenue you will need to achieve in order to break-even, you will first need to calculate your contribution margin. This figure is calculated by subtracting your variable cost per unit from your sale price per unit, and then dividing that number by the sale price per unit.**Contribution margin = (sale price per unit – variable price per unit) / sale price per unit**Once you know your contribution margin figure, you can then calculate your break-even point based on your revenue. To do this, simply divide your fixed costs by your contribution margin.

**Break-even point (revenue) = fixed costs / contribution margin**