Break Even Point Definition and Explanation

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Quick Definition

The minimum sales required for a company to meet its expenses.

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Break Even Point Formula

Explanation of Break Even Point

The Break Even Point (BEP) is a dollar figure calculated that represents the level of sales required for a company to meet its Operating Expenses, thereby breaking even. BEP is also called Break-even analysis, Break-Even Sales, and Cost Volume Profit Analysis (CVP).

Importance of Break Even Point

A decreasing Break Even Point is generally a positive sign, showing that the company will have an easier time reaching the point at which it breaks even during the course of its operations. Additionally, this value is useful in trying “what-if” scenarios, by re-running the calculation with estimated values in place of reported values to see how sensitive the Break Even Point reacts to these number changes.