Break-even Point

The break-even point is where there is neither profit nor loss. For a business it is where revenue exactly equals total costs; for an investment it is the price at which you recover your outlay including trading costs.

A company's break-even is fixed costs divided by contribution margin. With 10,000 of monthly fixed costs and 5 of margin per unit, you need 2,000 units to break even. Everything beyond that is genuine profit.

The heavier the fixed costs, the higher the break-even and the faster profit grows once you clear it. That is why capital-intensive sectors such as manufacturing and airlines suffer badly in downturns and earn heavily in booms.

In investing, fees and tax mean your purchase price and your break-even are not the same. Buy at 100 and selling at 100 is a small loss, not a wash. The more often you trade, the more this gap accumulates. Calculating break-even before starting a business shows how long you must fund the gap. That number is often a more realistic planning anchor than a revenue target.