In business finance, the point where a company’s total revenue exactly equals its total costs is called the break-even point.
At this level, the business has neither a profit nor a loss. The break-even point can be expressed in units sold or in sales revenue. The basic unit formula divides fixed costs by the contribution margin per unit, which is selling price minus variable cost per unit.
Fixed costs, such as rent and salaried administration, generally do not change with short-term output. Variable costs, such as materials and shipping, rise as production increases. This is why break-even analysis helps managers study pricing, output targets, and cost changes.
Break-even point is often confused with the payback period. Break-even concerns when revenue covers costs, while payback measures how long an investment takes to recover its initial cash outlay. Reaching break-even also does not necessarily mean the company has enough cash to meet every payment.