Definition:
Break-even point (BEP) is the level of sales at which a business's total revenue equals its total costs, meaning the business makes neither a profit nor a loss.
What does Breakeven Point mean?
A break-even point is the point where:
Profit = 0
or basically, when the company’s
Total Revenue = Total Costs (Fixed + Variable)
So, it is when the business is not making a profit, nor making a loss. It is also the point when all costs have been recovered.
Visualise it:
There is a tomato seller who goes to the wholesale market and buys tomatoes. He also has some costs that exist regardless of how much he sells.
Cost Type | Item | Amount |
Fixed Cost | Stall Rent | ₹300 |
Fixed Cost | Transport | ₹200 |
Variable Cost | Tomatoes Purchase Cost | ₹20 per kg |
Table: Costs incurred by the tomato seller
Item | Amount |
Selling Price of Tomatoes | ₹30 per kg |
Variable Cost | ₹20 per kg |
Margin earned | ₹10 per kg |
Table: Revenue earned by the tomato seller
So, the sabziwala has ₹500 of daily fixed costs to recover. Every kg sold contributes ₹10 toward recovering that ₹500.
So:
50 kg × ₹10 contribution = ₹500
At 50 kg of tomatoes sold, he has recovered all his costs.
Before 50kg, he runs at a loss, and after 50kg, he starts to earn a profit.
Definition:
Break-even point (BEP) is the level of sales at which a business's total revenue equals its total costs, meaning the business makes neither a profit nor a loss.
What does Breakeven Point mean?
A break-even point is the point where:
Profit = 0
or basically, when the company’s
Total Revenue = Total Costs (Fixed + Variable)
So, it is when the business is not making a profit, nor making a loss. It is also the point when all costs have been recovered.
Visualise it:
There is a tomato seller who goes to the wholesale market and buys tomatoes. He also has some costs that exist regardless of how much he sells.
Cost Type | Item | Amount |
Fixed Cost | Stall Rent | ₹300 |
Fixed Cost | Transport | ₹200 |
Variable Cost | Tomatoes Purchase Cost | ₹20 per kg |
Table: Costs incurred by the tomato seller
Item | Amount |
Selling Price of Tomatoes | ₹30 per kg |
Variable Cost | ₹20 per kg |
Margin earned | ₹10 per kg |
Table: Revenue earned by the tomato seller
So, the sabziwala has ₹500 of daily fixed costs to recover. Every kg sold contributes ₹10 toward recovering that ₹500.
So:
50 kg × ₹10 contribution = ₹500
At 50 kg of tomatoes sold, he has recovered all his costs.
Before 50kg, he runs at a loss, and after 50kg, he starts to earn a profit.