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Breakeven Point: Definition, Examples, and How To Calculate

By 

Dara-Abasi Ita

Updated March 19, 2025

Fact checked by 

Stella Osoba

Definition

The breakeven point is the exact level of sales where a company’s revenue equals its total expenses, meaning the business neither makes a profit nor has a loss.

Every business faces a critical threshold in its operations—the point at which sales revenue precisely covers all expenses. This pivotal moment, known as the break-even point, separates a time of financial losses from profitability.

Many ventures operate at a loss for extended periods before reaching this milestone. For companies, gauging how and when they will reach the breakeven point is crucial for financial planning and pricing. Below, we explore this essential concept in detail.

Key Takeaways

• The breakeven point occurs when revenue exactly equals total costs, when the money coming in equals the amount going out the door.
• To calculate the breakeven point in accounting, divide fixed production costs by the contribution margin (price per unit minus variable costs per unit).
• In investing, breakeven is achieved when an asset’s market price equals its original purchase price plus associated costs.
• Breakeven analysis helps businesses identify hidden expenses, make objective decisions, set realistic sales targets, secure investor funding, and optimize pricing strategies.

Applications of the Breakeven Point

The breakeven point is the specific level where a company’s total revenue equals its total costs, resulting in neither profit nor loss. This fundamental concept has several important applications:

• In business operations: The breakeven point identifies exactly how many units a company must sell, or how much revenue it must generate, to cover all its costs. This calculation forms the foundation of financial planning and pricing strategy.1
• In financial analysis: Analysts use breakeven calculations to assess if a company is using its money efficiently, whether it’s healthy, and whether it’s a risky investment. A lower breakeven point generally indicates a more resilient business model.
• In investment decisions: Investors apply breakeven analysis to determine when an investment will recoup its initial cost. For example, in options trading, the breakeven point occurs when the market price of an asset reaches a level that covers the premium paid plus any fees.
• In project management: Project managers use breakeven analysis to assess when a project’s benefits will offset its implementation costs, helping to justify resource allocation and timing decisions.

How To Calculate the Breakeven Point

The breakeven point is calculated in one of two major ways: by units sold or by sales dollars.

For Units

Break-Even Point (Units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)

For sales dollars, the formula is as follows:

Break-Even Point (Sales Dollars) = Fixed Costs ÷ Contribution Margin Ratio

Where:

• Fixed Costs are expenses that remain constant regardless of production volume (rent, salaries, insurance)
• Variable Costs are expenses that change directly with production volume (materials, direct labor, commissions)
• Selling Price per Unit is The revenue generated from selling one unit
• Contribution Margin is the amount each unit contributes toward covering fixed costs and generating profit
• Contribution Margin Ratio is the contribution margin expressed as a percentage of the selling price

Step-by-Step Calculation Example

Suppose you own a small candlemaking business. Here’s how we would calculate the breakeven point in steps:

1. Identify your fixed costs: Monthly overhead expenses total $5,000 (rent, utilities, base salaries)
2. Determine the variable costs (those that depend on how many units you make or change for other reasons): Each candle costs $10 to produce (materials, packaging, labor)
3. Set your sales price: Each candle sells for $25
4. Calculate the contribution margin: $25 – $10 = $15 per candle
5. Use the formula from above: Break-Even Point = $5,000 ÷ $15 = 333.33 units

As such, this business must sell 334 candles monthly to break even. At this sales volume, the revenue ($8,350) exactly covers all fixed and variable costs, resulting in zero profit and zero loss.

Analyzing the Breakeven Point in Different Areas of Finance and Investing

Business Decision Making

Breakeven analysis helps management make the following decisions:

• Pricing strategy: By understanding how different price points affect the breakeven threshold, businesses can set prices that balance market competitiveness with financial sustainability.
• Production planning: Manufacturers use breakeven analysis to determine minimum efficient production volumes and assess capacit