Why it matters
The break-even point tells a business how much it must sell before a new hire, a lease or a price change pays off. It turns a fixed cost into a sales target the owner can act on.
Example
A client has $120,000 of fixed costs and a 40 percent gross margin. The break-even point is $300,000 of revenue. Every dollar of sales above that adds 40 cents toward profit.
Related terms
Questions about Break-even point
How do I calculate a break-even point?
Divide the fixed costs by the gross margin percentage. If fixed costs are $120,000 and the gross margin is 40 percent, the break-even revenue is $300,000.
Does break-even include owner pay?
It should. If the owner's salary or draw is a real cost of running the business, include it in the fixed costs so the break-even point reflects the money the owner needs.