How do you reduce the break-even point?

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).