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How do you reduce the break-even point?

Author:
Harold Averkamp, CPA, MBA

Definition of Break-even Point

The break-even point is the number of units or amount of revenues needed for the company’s income statement to report zero net income or zero net loss.

Break-even analysis includes separating all of a company’s expenses (including semivariable expenses) into fixed costs/expenses and variable costs/expenses. For simple businesses with similar products or services, the total amount of fixed costs/expenses is divided by the contribution margin per unit or the contribution margin percentage.

Examples of Reducing the Break-even Point

A company’s break-even point will be reduced by the following:

  • Decreasing the amount of fixed costs/expenses
  • Reducing the variable costs/expenses per unit
  • Improving the sales mix
  • Increasing selling prices (billing rates) without significantly decreasing the number of units sold

The contribution margin increases by reducing the variable costs/expenses per unit and/or increasing selling prices (or billing rates).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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