Glossary
Break-even point
The minimum revenue level needed to cover all costs, fixed and variable. Below this threshold, the business is losing money.
What is the break-even point
The break-even point is the revenue level at which the business neither makes nor loses money: income exactly covers all costs. Below this threshold, the business operates at a loss. Above it, it generates profit.
Formula:
Break-even point = Fixed costs / Contribution margin (%)
An example
If the company has €400,000 in annual fixed costs and the average contribution margin is 25%, the break-even point is:
400,000 / 0.25 = €1,600,000
The company must generate at least €1.6 million in revenue just to cover costs. Every euro billed beyond that threshold generates 25 cents of profit.
Why it's useful to know
- Assessing growth sustainability: if the break-even point rises, the company needs more revenue just to stay even — as explained in the article on revenue and profit
- Making investment decisions: a new machine raises fixed costs. How much must revenue grow to compensate?
- Understanding sensitivity to downturns: if revenue drops 10%, is the company still above break-even?
Learn more: Fixed and variable costs | 5 numbers to check every week