What is a break even point

Break-even point - simply explained

The BeP is an important indicator, especially for young companies. If the minimum turnover required for the BeP is not achieved or the required number of items is not sold, this is a warning signal. The company must act urgently to ensure its survival. Meaningful options for action could then be:

  • increased sales efforts
  • Reduction of the fixed costs
  • Lowering the variable costs
  • Shutdown of production or parts of it

If one observes the development of the BeP over a longer period of time, one can determine whether the company is approaching the breakeven point or not. The BeP can also be used to predict how much Decline in sales the company coped with without falling into the red.

You plan a product new to the range a BeP analysis can be used to determine whether the expected sales volume is above or below the BeP. However, one must always take into account that expanding the product range can change the cost structure in the company. Fixed costs may rise because salaries have to be paid for new specialists or the existing space is insufficient and another hall has to be rented. On the other hand, the purchasing conditions for raw materials or parts could improve due to the larger quantities.