What is Break-even Point?
The break-even point (BEP) is the point at which total cost and total revenue are equal. At this point, your business generates zero profit but also incurs no loss.
The Mathematical Formula
BEP (Units) = Fixed Costs / (Price Per Unit - Variable Cost Per Unit)
Key Terms Explained:
- Fixed Costs: Expenses that remain constant regardless of production (Rent, Salaries, Insurance).
- Variable Costs: Expenses that change in proportion to production volume (Raw materials, Packaging, Shipping).
- Contribution Margin: The difference between Selling Price and Variable Cost per unit.