Business & Finance

glossaryTermPage.hero.prefix Break-Even Point?

The point at which a business's total revenue equals total costs, resulting in neither profit nor loss.

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Break-even analysis tells a business how many units it needs to sell (or how much revenue it needs) to cover all costs. Below the break-even point, the business operates at a loss. Above it, every additional sale generates profit. This analysis is crucial for pricing decisions, new product launches, and business planning. It considers fixed costs (rent, salaries) and variable costs (materials, commission) separately.

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

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A café has fixed costs of ₹2,00,000/month. Each coffee costs ₹40 to make and sells for ₹150. Break-even = ₹2,00,000 ÷ (₹150 − ₹40) = 1,818 coffees per month.

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How does break-even analysis help in pricing?

It shows the minimum price needed to cover costs at your expected sales volume. If break-even requires selling more units than your market can absorb, you need to raise prices or cut costs.

What if I sell multiple products?

Use weighted average contribution margin based on sales mix. Calculate each product's contribution margin and weight it by its proportion of total sales.

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Gross Profit

The profit a company makes after deducting the cost of goods sold (COGS) from its revenue, before accounting for operating expenses.

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