Glossary

Break-even point

The sales volume or revenue at which total costs are exactly covered and profit is zero.

It is fixed costs divided by contribution margin per unit, or fixed costs divided by the contribution margin ratio when expressed in revenue. The number on its own says little; what matters is how far above it a business expects to trade, which is the margin of safety. A business five percent above break-even is one slow month from a loss. A break-even calculated without the owner's own pay inside fixed costs describes a business that covers everyone except the person running it.

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