Break-even

Break-even, also known in Norwegian as nullpunkt, dekningspunkt or nullpunktsomsetning, is the point at which a business's revenue exactly covers all its costs, both fixed and variable. At this point the business breaks even, with neither a profit nor a loss. Understanding and calculating break-even is essential in order to make sure the business is financially sustainable.

Why does break-even matter?

Break-even is a critical tool for businesses that want to understand how much they have to sell in order to cover all their costs. This helps business owners set realistic sales and revenue targets, assess pricing, and plan for profitability.

How do you calculate break-even?

The formula for break-even in number of units is:

Break-even in units = Fixed costs / (Selling price per unit – Variable costs per unit)

What is break-even used for?

• Setting sales and revenue targets. The business knows how much it has to sell in order to avoid a loss.
• Assessing pricing. Adjusting the prices of products or services to make sure they are profitable.
• Planning cost control. Understanding which costs can be reduced in order to lower the break-even point and increase profitability.

An example of the calculation

A business has fixed costs of NOK 200 000 a month. It sells a product for NOK 500 per unit, and the variable costs per unit are NOK 300.

Break-even in units = 200 000 / (500 – 300) = 1 000 units

The business must therefore sell 1 000 units a month just to cover its costs. If it sells fewer than 1 000 units, it makes a loss. If it sells more, it makes a profit.

Read more about how the budgets in Capassa help you plan towards break-even.