Break-even point BEP: What it is and how to calculate it

For example, assume that in an extreme case the company has fixed costs of $20,000, a sales price of $400 per unit and variable costs of $250 per unit, and it sells no units. It would realize a loss of $20,000 (the fixed costs) since it recognized no revenue or variable costs. This loss explains why the company’s cost graph recognized costs (in this example, $20,000) even though there were no sales. If it subsequently sells units, the loss would be reduced by $150 (the contribution margin) for each unit sold. This relationship will be continued until we reach the break-even point, where total revenue equals total costs.

  • Hence, at $500,000 of net sales the company will be at the break-even point, which is the point where sales will be equal to all of the company’s expenses.
  • Home-based business groups, in particular, are inexpensive to join.
  • That is why BEP is also referred to as the time it takes for a business to become profitable.
  • Unlike a term loan that provides lump-sum funding, a business line of credit allows you to keep withdrawing and repaying your loan as often as you want, up to an approved limit.

For an Entrepreneur, a break-even point is a great tool to know if your business or new product will be worth the investment or not. The break-even analysis makes it simple and easy to strategies and plan your next steps to make your business profitable. Learn how to u