Break-even point: definition and calculation

[mouakter14]

If you want to determine when your new business will start generating profits, then the break-even point (BEP) is the metric you need, as it serves as the basis for planning and controlling profits within a company. To calculate the BEP, you must perform a break-even analysis, which we'll explain later.

Read on to discover the break-even point formula, what you should pay attention to in a break-even analysis, and why production can sometimes be of interest even if you haven't exceeded the break-even threshold.

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Break-even point: definition


The break-even point (BEP ) refers to the point at which costs are covered. As a key performance indicator ( KPI ), it represents the point where a company's total revenue (including sales revenue) and expenses offset each other. At the break-even point, total revenue and total costs are equal; that is, a profit has not yet been generated, but there are no losses either.


For entrepreneurs or new product providers, the break-even point is an important metric for determining when a new business becomes profitable. Therefore, if the break-even point is exceeded, you begin to generate profits. However, if the break-even point is not reached or is reached too late, the project may not be viable. For this reason, it is important to understand net and gross profit , as well as the profitability targets set.