Break-even point: understand this fundamental concept for the success of your business

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Pricing products and services is one of the biggest challenges for a company. To reach the ideal selling price, it is necessary to consider all business costs, market standards, profit margin and break-even point.

The latter will help you understand how much your business will start to pay for itself and marks the moment when your company will be ready to start making a profit.

To learn more about the break-even point, its importance for your business and how to calculate this important control point for your business, keep reading.

What is break-even point?
The break-even point is when the company's total revenue is exactly equal to the sum of costs and expenses. In other words, it is calculated to know how much needs to be sold to fund operations without making a loss.

This means that when the break-even point is Vietnam Phone Number Lead exceeded by R$1, it means that your company is making a profit. Finding your break-even point is essential to understanding how long you will have to inject money into the business until it can earn enough to pay all its bills on its own.

Breakeven point
How to calculate your break-even point
Before talking about the break-even formula, you need to understand two factors:

1. Fixed expenses
These are all the costs necessary to keep the company running, regardless of how much you produce . This includes rent, employee salaries, water, electricity, office supplies, hygiene and cleaning supplies, cleaning and maintenance services, among others.

This calculation does not include costs for producing products or purchasing products that will be resold, sales taxes and sales commissions. These costs must be included in the sales price of the product.

2. Contribution margin
This is the gross profit on sales. To calculate it, you add the production costs (products or inputs purchased from the supplier) and the variable expenses (sales taxes and sales commissions), and add the contribution margin to the result.

The formula
Calculating the break-even point is very simple: add up your business’s fixed expenses and divide by the contribution margin. The formula is:

Let's look at an example. If a company spends R$50,000 annually to continue operating and its contribution margin is 23%, what is its break-even point?

This means that, to maintain the company without making losses, a gross income of at least R$217,391.30 per year will be necessary.

Breaking even means that your costs have equaled your revenue and your business has become sustainable and is ready to start making a profit. For this to happen, you need to set your prices correctly. Learn how to set prices and calculate prices for products and services here .

Organize your company's finances with our tools
If you were unable to calculate your break-even point because you didn't know what your business's fixed expenses or contribution margin were, it's a good idea to go back a few steps. Our Tapa Na Cara methodology helps entrepreneurs prepare for the business world and deal with all the bureaucratic and financial aspects of the business.

To foster entrepreneurship, we are providing all the tools used in the 55 Club , our course for entrepreneurs, free of charge. Just click on the banner below and download it. The feasibility study spreadsheet for legal entities is ideal for collecting all this data, in addition to automatically calculating the month in which your business will reach the break-even point.