Glossary · break-even analysis · break-even revenue
Break-even point: definition
The break-even point is the level of sales at which a business covers its fixed and variable costs over a given period. At that level, it makes neither a profit nor a loss, based on the prices, costs and sales mix assumed in the calculation.
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The formula for break-even revenue
Break-even revenue = fixed costs / contribution margin ratio. Calculate the ratio as (revenue − variable costs) / revenue, then use the decimal value: 40 % becomes 0.40. Revenue and the ratio must be positive for this calculation. The US Small Business Administration also distinguishes break-even revenue from break-even units.
Use the same period for every figure. Rent is usually fixed, while materials consumed for each sale vary with activity. Exclude recoverable VAT and include non-recoverable VAT in the relevant costs. Discuss mixed costs with your accountant so the split reflects how your business actually operates, rather than treating every expense the same way.
A fictional example in euros
This example is entirely fictional and covers one year, excluding recoverable VAT. A small business forecasts €120,000 in revenue, €72,000 in variable costs and €24,000 in fixed costs. Its contribution margin is €48,000, giving a contribution margin ratio of €48,000 / €120,000 = 0.40, or 40 %.
Break-even revenue is therefore €24,000 / 0.40 = €60,000. At that sales level, assuming the same cost ratio, variable costs are €36,000. Together with €24,000 in fixed costs, they use up the full €60,000 in revenue. Revisit the calculation when your prices or the mix of products and services sold changes.
Estimating break-even in days
To estimate the time needed to reach the annual revenue threshold, use (break-even revenue / forecast annual revenue) × days in your chosen year basis. On an explicitly chosen 360-day basis, the example gives 60,000 / 120,000 × 360 = 180 days. This assumes even sales throughout the period; seasonal businesses need a monthly view.
This estimate concerns the revenue needed to cover costs, rather than the time required to recover an initial investment. It also differs from cash availability: customers may pay after you record a sale. Business management software helps you follow sales and invoices; add your cost data and review cash movements separately.
Following your sales figures in Eazyclick
Eazyclick brings revenue and invoice tracking together in your dashboard, with the Quotes & invoices module. Ziggy, Eazyclick's AI assistant, answers using the figures in your business software. Combine that sales information with your fixed and variable costs when reviewing the assumptions behind your break-even analysis with your accountant.
Related terms
- Business management software Business management software is a program that helps a company organise its administrative and sales work: customers, quotes, invoices, payments, stock and scheduling.
- ERP An ERP (Enterprise Resource Planning) system is software that brings a company's management functions (customers, sales, purchasing, invoicing, stock, scheduling) together around a single database.
- AI assistant An AI assistant is an artificial intelligence program you talk to in everyday language to get an answer, a text or an action.
Further reading
Questions about Break-even point
How do you calculate the break-even point?
For break-even revenue, divide fixed costs by the contribution margin ratio. Calculate that ratio by subtracting variable costs from revenue and dividing the result by revenue. Use the decimal value, such as 0.40 for 40 %, and keep all figures on the same time basis for a consistent calculation.
How do you calculate break-even in days?
Divide break-even revenue by forecast annual revenue, then multiply by the number of days in your chosen year basis. State whether you use 360 or 365 days and keep it consistent. This estimates when cumulative sales reach the annual threshold, assuming an even sales pattern throughout the period.
Does breaking even mean all invoices have been paid?
No. Breaking even compares revenue with costs over a period, while cash availability depends on when money actually enters and leaves the business. Customers may pay after you record a sale. Follow unpaid invoices, payment dates and upcoming expenses alongside your profitability analysis to understand your cash position.
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