Description
Break-even point (BEP) is when a company’s revenues equal its expenses during a financial period. When a company reaches its BEP, it means that it is neither in profit nor in losses. BEP is also referred to as the revenue amount that a company needs to achieve to cover its expenses during a given period.
Example
For instance, if Vareto spent $100,000 in a given year and also earned revenues of $100,000 then it has achieved its break-even point. It tells us that Vareto didn’t gain anything nor did it lose money.
Why it matters
Companies, especially startups, must calculate their break-even point in order to know the minimum amount that they will need to cover their expenses. At a granular level, break-even calculation can tell companies about the right price levels, customer base, or cost-cutting initiatives they will need to achieve a certain financial level.