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Financial Metricsimportant

Break-Even Point

The point at which total revenue equals total costs, resulting in neither profit nor loss.

Formula
Break-Even Revenue = Fixed Costs ÷ Gross Margin %
Example

With $100K monthly fixed costs and 80% gross margin, break-even is $125K monthly revenue.

Good Range

Achievable break-even within 12-24 months

Warning Range

Break-even requiring unrealistic revenue or time

Complete Definition

The break-even point is when your business's total revenues equal total costs, meaning you're not making or losing money. It's a crucial milestone that indicates financial sustainability.

How to Calculate Break-Even

For Units

Break-Even Units = Fixed Costs / (Price per Unit - Variable Cost per Unit)

For Revenue

Break-Even Revenue = Fixed Costs / Gross Margin %

For Time

Break-Even Time = Initial Investment / Monthly Profit

Components

Fixed Costs

Costs that don't change with volume (rent, salaries, software)

Variable Costs

Costs that change with volume (COGS, commissions, hosting)

Contribution Margin

Revenue minus variable costs (what's left to cover fixed costs)

Why Break-Even Matters

- Shows minimum viable revenue - Guides pricing decisions - Informs funding needs - Helps set sales targets - Indicates business viability

Break-Even Analysis Uses

- Launch planning - Pricing strategy - Investment decisions - Goal setting - Scenario planning

Used in:Financial ProjectionsBreak-Even Analysis

Related Terms

Gross Margin
The percentage of revenue remaining after deducting direct costs of goods sold.
Profitability Potential
The likelihood and timeline for a business to generate sustainable profits.

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