What is Break-Even Point?
The break-even point is the level of sales at which gross profit exactly covers fixed expenses, so the business makes neither profit nor loss.
Updated
Meaning
English
The break-even point is the level of sales at which gross profit exactly covers fixed expenses, so the business makes neither profit nor loss.
Roman Urdu
Break-even point sale ki woh had hai jahan gross profit bilkul fixed kharchon ke barabar ho jata hai, na munafa na nuqsan.
Also called break even, BEP, break-even sales.
Example
A cafe's fixed costs are 450,000 rupees a month and its average gross margin is 60%. Break-even sales are 450,000 divided by 0.6, which is 750,000 rupees a month, or about 25,000 a day.
How it works
Break-even turns a vague goal into a daily target. Divide fixed monthly costs (rent, salaries, generator fuel, internet, loan payments) by the gross margin percentage. Every rupee of sales above that point is profit at the gross margin rate.
It is especially useful before opening a branch or taking a bigger shop: if the new rent pushes break-even above what the location can realistically sell, the move is risky. It also shows why discounts are expensive, since a lower margin raises the sales needed just to cover costs.
In Nafaa
The analytics on the Nafaa P&L page include margins and break-even, worked out from the shop's own expenses and gross margin for the chosen period.
Related terms
- Gross Margin
Gross margin is gross profit shown as a percentage of the selling price: (selling price minus cost) divided by selling price.
- Operating Expenses
Operating expenses are the regular costs of running a business that are not part of the goods sold, such as rent, salaries, electricity and internet.
- Profit and Loss Statement (P&L)
A profit and loss statement is a report of sales, costs and expenses over a period that shows whether the business made a profit or a loss.