What Is the Break-Even Point of a Business?
The break-even point is the level of sales at which your business covers all its expenses — no profit, no loss.
🔹 In other words: If you sell just enough to reach the break-even point, you’re at “zero balance”.
Once you surpass that point, you begin earning net profit.
What Costs Are Included?
Costs are divided into two main categories:
1. Fixed Costs
These are the expenses you pay regardless of sales:
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Rent
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Administrative salaries
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Insurance
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Accounting/legal services
2. Variable Costs
These increase proportionally with sales:
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Product cost
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Sales commissions
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Consumables
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Utilities (electricity/water/phone)
How Do I Calculate the Break-Even Point?
There are several ways to express it:
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In monetary value of sales (e.g., €50,000)
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In number of products sold (e.g., 1,000 units)
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As a percentage of turnover (e.g., 45%)
Basic formula:
Break-Even (€) = Fixed Costs / (1 – Variable Costs / Sale Price)
Example:
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Product sale price: €100
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Variable cost: €60
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Fixed costs: €20,000
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Profit per product = €100 – €60 = €40
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Break-even = €20,000 / €40 = 500 units
If you sell fewer than 500 products, you lose money. If you sell more, you earn net profit.
How Does It Help in Practice?
Knowing your break-even point is not theory. It’s a decision-making tool:
1. For Pricing
If you know how much each product costs and your break-even point, you can see if your sale price is sustainable.
2. For Business Planning
Before starting a new project, you can assess:
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How many sales are needed to reach break-even?
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What capital is required to survive until then?
3. For Risk Management
If sales drop in a given year but your break-even point is low, you’re safer.
Example 1: Neighborhood Coffee Shop
George opened a small coffee shop.
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Fixed costs: €3,000/month
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Cost per coffee (ingredients, cup, etc.): €0.80
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Sale price per coffee: €2.50
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Profit per coffee: €1.70
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Break-even = €3,000 / €1.70 = 1,765 coffees/month (~59 coffees/day)
If George sees he’s not selling at least 60 coffees a day, he knows something needs to change.
Example 2: Online Clothing Store
Eleni runs an online store.
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Fixed costs (hosting, ads, salaries): €8,000/month
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Average sale price: €40
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Average purchase cost: €20
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Profit per sale: €20
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Break-even = €8,000 / €20 = 400 sales/month
That’s 13–14 sales per day. If she’s falling short, she needs to review her costs, pricing, or marketing campaign.
Tip for the Entrepreneur: Don’t Assume – Calculate
The biggest mistake most small and medium business owners make is not knowing their break-even point. The result? They operate “in the dark”.
✅ Recalculate every year
✅ Ask your accountant or advisor to help
✅ Use it for pricing, budgeting, and strategy evaluation
Conclusion
The break-even point isn’t just a number to put in Excel and forget. It’s the ultimate “alarm bell” telling you whether your business is alive, breathing, and profitable.
The better you understand and monitor it, the healthier and more predictable your operations will become.
