The break-even point is the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business. In other words, you've reached the level of production at which the costs of production equals the revenues for a product.
In business accounting, the break-even point refers to the amount of revenue necessary to cover the total fixed and variable expenses incurred by a company within a specified time period. This revenue could be stated in monetary terms, as the number of units sold or as hours of services provided.
A company breaks even for a given period when sales revenue and costs incurred during that period are equal. Thus the break-even point is that level of operations at which a company realizes no net income or loss.
When a company is operating at its breakeven point: its total revenues will be equal to its total expenses. If a company sells one unit above its breakeven sales volume, then its operating income would be equal to: the unit contribution margin.
The Break-even Point of a company is that level of sales income which will equal the sum of its fixed cost.
A break-even analysis is a financial calculation that weighs the costs of a new business, service or product against the unit sell price to determine the point at which you will break even. In other words, it reveals the point at which you will have sold enough units to cover all of your costs.
The break-even point (BEP) or break-even level represents the sales amount—in either unit (quantity) or revenue (sales) terms—that is required to cover total costs, consisting of both fixed and variable costs to the company. Total profit at the break-even point is zero.
When your company reaches a break-even point, your total sales equal your total expenses. This means that you're bringing in the same amount of money you need to cover all of your expenses and run your business. When you break-even, your business does not profit. But, it also does not have a loss.
The break-even point is reached when the total revenue exactly matches the total costs and the business is not making a profit or a loss. If the firm can sell at production levels above this point, it will be making a profit.
The higher the fixed costs for the business, the higher the breakeven point will be, meaning the more offerings it needs to sell. The process of determining the breakeven point is a good time for businesses to assess their true cost of doing business and their prices.