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What is a Break-Even Point?
The break-even point is the exact moment when a business’s total revenues equal its total costs. At this point, the business is making neither a profit nor a loss. Knowing your break-even point is crucial for setting prices, planning sales targets, and determining the viability of a new product.
The Break-Even Formula
To calculate your break-even point in units, you need to know three numbers: your fixed costs, your variable costs per unit, and your selling price per unit.
Break-Even Point (Units) = Fixed Costs / (Selling Price per Unit – Variable Cost per Unit)
The denominator (Selling Price – Variable Cost) is also known as the Contribution Margin.
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