The break-even point is a key financial concept that represents the level of sales at which a business covers all its costs—both fixed and variable—and neither makes a profit nor incurs a loss. At this point, total revenue equals total expenses.

Understanding the break-even point helps businesses determine the minimum sales volume needed to avoid losing money. It is especially useful in pricing strategies, budgeting, and financial planning. The break-even point is calculated using the following formula:

Break-Even Point (in units) = Fixed Costs ÷ (Selling Price per Unit - Variable Cost per Unit)

• Fixed costs are expenses that do not change with production or sales volume, such as rent, salaries, and insurance.

• Variable costs change with output, like raw materials and direct labor.

• The difference between selling price and variable cost is known as the contribution margin.

For example, if a company has $10,000 in fixed costs, sells its product for $50, and incurs $30 in variable cost per unit, it must sell 500 units to break even.

Reaching the break-even point means the business is not losing money, but it’s also not generating profit. It is a crucial benchmark for assessing financial viability and setting growth targets.