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Break-even Point: Definition and Meaning
Definition
The break-even point is the level of sales at which total revenue equals total costs, resulting in neither a profit nor a loss.
Why It Matters
Understanding break-even can help owners evaluate pricing, sales targets, staffing decisions, fixed-cost commitments, and new investments. It can also help management model how changes in volume, margins, or overhead may affect profitability.
A break-even calculation depends on reliable assumptions about fixed costs, variable costs, selling prices, and the mix of products, services, or projects.
Example
If a business has $100,000 of fixed costs and earns $20 of contribution margin from each unit sold, it needs 5,000 units to break even.
Related Terms
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