Small Business Terms: Break-Even Point

by Greg DePersio

0 min read

The break-even point is the figure a company must attain to make a net income of $0. The calculation can be reported in dollars or units of sale. To calculate the dollar amount, divide total fixed costs by the contribution margin ratio. To calculate the units of sale, divide total fixed costs by the contribution margin per unit.

Both calculations analyze the relationship between fixed and variable costs. Lower variable costs mean more revenue is retained per additional unit of sale. However, part of these earnings must cover fixed costs. Therefore, the break-even point is an important calculation as it indicates a forecasting point in revenue where all fixed costs are covered and all revenue after variable coats is retained.

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