Break-Even Analysis

Determining When a Product Becomes Profitable

Break-Even Analysis

How many items do you need to sell before you start making a profit?

© iStockphoto/AndrewJohnson

In business, your ultimate objective is to make money.

So, when you launch a new product or purchase a new piece of equipment, how do you know whether a potential investment will at least cover the costs associated with it?

You could simply make a wish and hope it all works out – or you can evaluate the project more formally to see if it makes financial sense. One way of doing this is to complete a Break-even Analysis.

This determines the Break-even Point – the level of output at which the revenues generated by a project equal costs. At the Break-even Point, you don't make or lose money. Once you pass Break-even, you make money; below it, you lose it.

Using a Break-even Analysis, you can answer questions like these:

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