Breakeven refers to the point where an enterprise does not make money or lose money. The term often used is the breakeven point, which is the point where the expenses and the revenues are equal to each other. Hence, the business does not make a profit, nor does it lose money.
The breakeven point is an important point for any business. Once reached, it is the first step towards making money or making a profit. In order to go beyond the breakeven point, businesses have to ensure that their revenues exceed their expenses. This can be done in many ways.
One is to reduce fixed costs. Fixed costs include rent and the wages of employees. Another way is to reduce variable costs. For example, a company may opt to look for another supplier that offers a discount on raw materials.
Lastly, the price of the product or service that the company sells can be increased. Coupled with decreased costs, this is an effective way of going beyond the breakeven point.
The breakeven point is quite simple and yet it is one of the most significant tools for any business.