Break-even

A break-even point is the level of sales (in terms of either value of volume) needed to cover the fixed costs; the level at which a company (or business unit or product) does not make either a profit or a loss.

Break-even analysis is useful because it helps analyse the chances of a new venture succeeding. The concept is also closely related to operational gearing. The closer to break-even, the higher the operational gearing.

The break-even point in number of units sold is:

fixed cost ÷ contribution per unit.

or in revenue terms:

fixed costs ÷(1 - contribution margin)
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