“broken even”).Īll incremental revenue beyond this point contributes toward the accumulation of more profits for the company.Ĭonducting a break-even analysis is a prerequisite to setting prices appropriately, establishing clear and logical sales target goals, and identifying weaknesses in the current state of the business model that could benefit from improvements (e.g., sales tactics and marketing strategies).įurthermore, established companies with a diverse portfolio of product/service offerings can estimate the break-even point on an individualized product-level basis to assess whether adding a certain product would be economically viable.
If a company has reached its break-even point, this means the company is operating at neither a net loss nor a net gain (i.e. The Break Even Point is the necessary level of output for a company’s revenue to be equal to its total costs – or said differently, the inflection point at which a company begins to generate a profit.įor all business owners, particularly during the earlier stages of a business, one of the most crucial questions to answer is: “When will my business break even?”Īll businesses share the similar goal of eventually becoming profitable in order to continue operating.Īn unprofitable business eventually runs out of cash on hand, and its operations can no longer be sustained (e.g., compensating employees, purchasing inventory, paying office rent on time).īy understanding the required output to break even, a company can set revenue targets accordingly, as well as adjust its business strategy such as the pricing of its products/services and how it chooses to allocate its capital.
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