What is Breaking Even?

There are many phrases or business jargon that gets thrown around when you are in business and one of them is “break-even”. The question is what does that even mean! The definition is basically when your profits equal the costs. Meaning when your income equals your expenses exactly and your P&L (Profit and Loss) shows neither a profit nor a loss.

It’s important to know what your break even point is so you can be profitable.  If you are launching a new product or service you will need to determine what your break-even point is so you know whether it’s making you money or costing you money.  You will need to determine how much of the product or service you need to sell in order to at least cover your expenses for it. 

It can also be used as an indicator of your marketing strategy.  Are you reaching as many consumers that ultimately make a purchase from you to make that investment worth it.  Once you determine the costs involved in producing your new product or developing your new service or investing in marketing the next step is to calculate what the minimum amount is that you need to sell in order to cover those costs.  That’s your break-even point! Of course it would be better to make a profit, but at least you will know what the minimum is so you can go from there. 

What happens when you don’t reach your break-even point? You have a loss. When you have a loss and you still continue forward your business will accumulate debt over time. If you keep going down that road it will eventually cause the business to fold.  Don’t do that. Do the calculations or hire someone else to help you.

The moral of the story is, do the calculations.  Figure out what your break-even point is and how much you need to sell in order to reach that.  If you don’t think you will be able to reach those marks, rethink the product, or strategy or investment.  Need help? Reach out and collaborate with a professional so you can make better decisions and grow your wealth.