What is Breakeven Point?
Nexa Consultancy | Startup & Finance Glossary
The Breakeven Point is the level of sales at which a company's total revenues equal its total costs, resulting in zero profit and zero loss. It is a fundamental concept in cost-volume-profit (CVP) analysis.
For Startups: For a startup, identifying the breakeven point is crucial for setting sales targets and making pricing decisions. It answers the critical question: "How much do we need to sell to stop losing money?". This analysis helps founders understand the viability of their business model and plan their path to profitability, which is a key milestone for both the company and its investors.
Calculation: Breakeven Point (in Units) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit).
Example: A company has fixed costs of ₹1 Lakh per month. It sells a product for ₹100 with variable costs of ₹60. The contribution margin is ₹40. The breakeven point is ₹1L / ₹40 = 2,500 units per month.