Glossary
Break-even point
Definition
The break-even point is the sales volume at which revenue covers all fixed and variable costs, with zero profit: fixed costs ÷ contribution margin per unit. Each unit beyond it adds its contribution margin to profit.
How break-even point works
Break-even revenue multiplies break-even units by price.
Raising price or lowering variable cost reduces break-even quickly.
Why it matters to a firm
It's the first management-accounting question owners ask, and a gateway to advisory.
Questions about break-even point
What's the formula?
Fixed costs ÷ (price − variable cost).
Does it include owner pay?
It should, in fixed costs.
Can services use it?
Yes, with hours as units.
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Related terms: Contribution margin
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