Break-Even Point

This formula gives the number of units you must sell so that total revenue exactly covers total costs, leaving neither profit nor loss. It works because each unit contributes a margin of P - VC toward paying off fixed costs; once the fixed costs are fully covered, every additional unit creates profit. If the selling price is only slightly above the variable cost, you need many more units to break even because each sale contributes less toward those fixed costs.

Use this when you need to find the sales level required to avoid a loss for a product, service, or project. It is especially useful for pricing decisions, budgeting, and checking whether a business idea can become profitable at expected sales volumes.

• subtracting fixed costs from price instead of subtracting variable cost from price
• forgetting that the answer is a quantity of units, not dollars
• using total revenue or total cost without first finding the per-unit contribution margin