Break-even point

The breakeven point is displayed in a graph where the total costs (fixed costs plus variable costs) meets the total revenue line

At low levels of sales, a business is not selling enough units for revenue to cover costs. A loss is made. As more items are sold, the total revenue increases and covers more of the costs. The break-even point is reached when the total revenue exactly matches the total costs and the business is not making a profit or a loss. If the firm can sell at production levels above this point, it will be making a profit.

Establishing the break-even point helps a firm to plan the levels of production it needs to be profitable.