The break-even point is a critical concept for any business. After all, the goal of any organization should be to produce a profit! It can be difficult to determine what this might mean for your company–especially if you are not familiar with financial terms such as net income and margin.
The first step in understanding how your business sells products is understanding how these concepts work together. This article will explain what the break-even point means, why it’s important, and how to calculate where yours falls on the spectrum of profitability.
What is the break-even point? The break-even point (BEP) marks where a company’s annual output and sales equal its expenses. In other words, it occurs when total revenue equals total costs–meaning that you are at “zero profit.” This does not mean zero net income; rather, this means that all funds have been used to cover operational expenses with no surplus left over.
At BEP, the amount of money in your bank account will be exactly what it was before accounting for any revenues earned or incurred by the business during that year. *Why is knowing your break-even important?
