What is a break-even point?

If you’re considering starting an online business, there are a few fundamental questions to ask yourself, including the point where your business begins to become profitable. Figuring out your break-even point will help you with this.

Your break-even point (BEP) is where your total revenue equals its expenses, meaning there is no loss or profit. In short, it is when your total income equates to your total revenue. It means your business has recouped its expenditure from the total income of its business activities. Essentially, your net profit for the period is nil.

For instance, assume the financial controller of ‘Earrings & Things’ - an ecommerce company specialising in personalised earrings - wants to calculate the business’ break-even point.

For the upcoming financial year, its estimated fixed expenses are GBP 50,000 while variable expenses are GBP 10 per unit. Using a sale price of GBP 30 per unit, we can calculate Earrings & Things’ BEP to be:

BEP = GBP 50, 000 ÷ (30-10)

=2,500 units.

Therefore Earrings & Things would need to sell 2,500 units of earrings for its total revenue to be the same as its total costs.

If you’re a business owner or budding entrepreneur with a great online business idea, one of the things to consider is the financial viability of your ecommerce business. Understanding what a break-even point is and how it relates to your ecommerce business can help you visualise this.