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Break even calculation12/7/2023 The incremental revenue beyond the break-even point (BEP) contributes toward the accumulation of more profits for the company.Ĭonducting a break-even analysis is a prerequisite to setting prices appropriately, establishing clear and logical sales target goals, and identifying weaknesses in the current state of the business model that could benefit from improvements (e.g., sales tactics and marketing strategies).įurthermore, established companies with a diverse portfolio of product/service offerings can estimate the break-even point on an individualized product-level basis to assess whether adding a certain product would be economically viable. If a company has reached its break-even point, this means the company is operating at neither a net loss nor a net gain (i.e. Otherwise, the business will need to wind-down since the current business model is not sustainable.Īn unprofitable business eventually runs out of cash on hand, and its operations can no longer be sustained (e.g., compensating employees, purchasing inventory, paying office rent on time).īy understanding the required output to break even, a company can set revenue targets accordingly, as well as adjust its business strategy such as the pricing of its products/services and how it chooses to allocate its capital. There is no net loss or gain at the break-even point (BEP), but the company is now operating at a profit from that point onward.įor all business owners, particularly during the earlier stages of a business, one of the most crucial questions to answer is: “When will my business break even?”īusinesses share the similar core objective of eventually becoming profitable in order to continue operating. The Break-Even Point (BEP) is the inflection point at which the revenue output of a company is equal to its total costs and starts to generate a profit.
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