The definition of break-even, dead-end or break-even point in finance refers to the level of sales of a company to cover the costes fixed and variable. This will imply that a company, at its breakeven point, will have a profit equal to zero, where it will not lose money, but it will not earn it either.
This concept of equilibrium point allows the cover with costs. As soon as sales increase, it will be able to rise above the breakeven point, thus reaping a profit. For its part, a drop in sales will reduce the breakeven point, generating losses.
Businesses should take into account, even before their inception, a possible estimate of the deadlock in order to know the precise level of sales to recover the investment made. If they do not cover costs, the company would have to face a series of changes to achieve a better balance point.
How to calculate the breakeven point
When a company wants to know the number of units of a product that must be sold to obtain the aforementioned breakeven point or break-even point, it must perform the following calculation. It would be enough to divide the fixed costs by the result of subtracting the unit variable cost from the sale price for each unit.
Balance point calculator
On the other hand, the formula to achieve the breakeven point through the calculation for sales to follow would be the following: divide fixed costs by 1 - the result of dividing the variable cost by the total sales.
Obtaining the breakeven point leads companies to know what costs to assume. That implies knowing all the disbursements or outflows of money from your accounts. In addition, it is necessary to differentiate between fixed and variable costs. The latter change according to the level of activity.