The break-even point is the sales volume or revenue figure at which a business's total revenue exactly covers its total costs, fixed and variable, leaving zero profit and zero loss.
What it means
It's calculated by dividing fixed costs by the contribution margin (selling price less variable cost per unit), showing how much needs to be sold before the business starts generating profit above that level.
Where it fits in
Payroll is usually one of the largest fixed costs feeding into the break-even calculation for a labour-intensive business, so changes in headcount or pay rates shift the break-even point directly.
Key rules
- The point where total revenue equals total costs.
- Calculated as fixed costs divided by contribution margin per unit.
- Sales above this point generate profit; below it, a loss.
- Payroll cost is often the largest fixed cost driving this figure.
