What Is the Break-Even Point in Simple Words?

The break-even point is the point at which your revenues and expenses are equal. In other words, it’s the point at which you’re neither making a profit nor a loss.

For businesses, the break-even point is an important metric to track. It can help you determine how much you need to sell to cover your costs and start making a profit. It can also give you a better understanding of your pricing strategy and whether or not it’s sustainable in the long term.

There are a few different ways to calculate the break-even point. The most basic method is to divide your total fixed costs by your average selling price. This will give you a rough estimate of the number of units you need to sell to cover your costs.

For example, let’s say your average selling price is $100 and your total fixed costs are $10,000. This means you would need to sell 100 units to break even.

If you want to be more precise, you can use a formula that takes into account your variable costs as well. To do this, you’ll need to know your total variable costs, your total fixed costs, and your gross margin.

Once you have this information, you can plug it into the following formula:

Total Fixed Costs / (Selling Price - Variable Costs)

For example, let’s say your selling price is $100, your variable costs are $20, and your total fixed costs are $10,000. This means your break-even point would be 125 units.

Once you know your break-even point, you can start to price your products and services accordingly. This information can also help you make decisions about your business model and whether or not it’s feasible in the long term.

How do you determine your selling price?

When you are determining your selling price, you need to find the total cost of all units purchased first. To do this, you can divide the total cost by the number of units purchased. This will give you the cost price.

Once you have the cost price, you can then use the selling price formula to calculate the final selling price. This formula takes into account the cost price and the profit margin. The profit margin is the percentage of the selling price that is profit.

For example, let’s say that you purchased 100 units for a total cost of $1,000. This means that each unit costs $10. If you want to make a profit margin of 10%, then your selling price would be $11 ($10 + $1).

How do you determine your variable costs?

To calculate your break-even point, you need to know your variable costs. Variable costs are the costs that change based on how many products you make. For example, if you make widgets, your variable costs might include the cost of the materials to make the widgets, as well as the cost of labor to assemble them.

To calculate your variable costs, you need to multiply the cost to produce one unit of your product by the number of products that you have made.

This formula looks something like this:

Total variable costs = Cost Per unit * Total Units.

For example, let’s say that it costs you $10 in materials and labor to make one widget. If you make 100 widgets, your total variable costs would be $1,000.

Once you know your variable costs, you can calculate your break-even point.

Keep in mind that your break-even point is the number of units that you need to sell to cover your costs. It is not the number of units that you need to sell to make a profit. To make a profit, you would need to sell your widgets for more than it costs you to make them.

How do you determine your total fixed costs?

To determine your total fixed costs, add your variable expenses to your total production cost and divide it by the number of products produced. This will give you an estimate of your total fixed costs.


The break-even point is the point at which a company’s revenues and expenses are equal. This figure is important because it helps businesses determine if the prices they charge for their products or services are sufficient to cover the cost of manufacturing them.

If a company’s expenses exceed its revenues, it will incur a loss. Conversely, if a company’s revenues exceed its expenses, it will generate a profit. The break-even point is therefore a key metric for businesses to track, as it can provide insight into whether or not a company is operating at a profit or a loss.

About the Author
Hi there, I'm James, founder of Melbado. I have over 20 years of experience as a leader and entrepreneur. Recently, I turned to leadership coaching and writing to pass on my knowledge to the next generation. If you have any questions or comments, please contact me via our contact page.


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