what does it mean to “break even” in finance/business
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When the amount customer pays = the amount the business spent on that item. That’s break even. No money lost. No money gained.
It means that the cash you take in and the expenses you incur are the same. You have made no profit but also you have lost no money.
Think of it like a lemonade stand run by kids.
The kids spend $50 on sugar, lemons, ice, a table and chair, cups, and a sign.
They then sell 50 cups of lemonade for $1, making $50.
Profit and loss are even. They “broke even”.
You earned enough money to cover the costs of what you put into it, but not any more than that. So if you spent 10 bucks buying, let’s say cookies and earned 10 bucks selling cookies, you broke even. Overall you earned 0 dollars but you also lost 0 dollars.
No profit, no loss.
Essentially, you get the exact amount of money you spent back. Kinda like a refund
Simply put, it’s when you make a sum of money equal to your investment. There is no profit or loss.
You buy $100 in stock for ABC Company. 5 years later the company has really taken off and you sell the stock for $500. That is a profit of $400.
You buy $100 in stock for ABC Company. 5 years later the company is falling apart and you can only sell the stock for $1. That is a loss of $99.
You buy $100 in stock for ABC Company. 5 years later they’re still just doing the same old, same old. You sell the stock for $100. That is breaking even.
It’s means you “made” as much as you spent so you didn’t profit, but you didn’t lose money.
So say you start out with $200$, you spend 100$ on lemonade supplies that leaves you with 100$
If you make $50 selling lemonade, you’re now at $150 which is less than what you started with, so you lost $50
If you make $150 selling lemonade you’re at $250 so you profited $50
If you make 100$ selling lemonade, you’re back to having 200$. Which is exactly where you started. You broke even.
The amount you made is equal to the cost. There are different types of breaking even.
Say a taco costs $5 to make, if you sold it for $5, you broke even on it.
If your monthly expenses are $500 and you made $500 in revenue, then you broke even on that. You didn’t make any money that month but you didn’t lose any either. If you only sold $400 with of stuff you’d have lost $100.
There’s a thing called the break even calculation. Which is how much of a thing you’d have to sell so that you don’t lose any money. It takes in your fixed costs, and variable costs and the price you sell it for.
Let’s say you have a taco truck. You’re going to spend $200 a driving around in gas regardless of how many tacos you make. Insurance on your truck costs $100 a month. A taco takes $2 to make in ingredients.
So you have $300 in fixed costs, and a variable cost of $2 per taco. Let’s say you’re selling those tacos for $5.
The formula is: fixed costs / (sell price – variable cost)
Or 300/(5-2). Which is 100. So you would have to sell $100 tacos to break even and not lose any money. If you sell 101 tacos, you’ve now made money.
If you change the price to $10, it becomes 300/(10-2) or 300/8. You would need to sell 37.5 tacos before making a profit. The question is if you could convince 38 people to buy a taco at $10 vs 100 for $5.
And let’s say you don’t know the price, but you know you can make 60 tacos a day. You can determine the minimum amount to sell for with the calculation:
(Fixed costs / number of units) + variable price.
(300/60) + 2. Which is 7. So at a minimum you would have to sell your tacos for $7 to break even making 60 of them. If you can’t do that, then your business currently isn’t profitable.
Generally “break even” when the total revenue you make from something is equal to how much it cost you.
So if you buy a lawnmower because you want to mow lawns for a business, you “break even” when the money you made will be equal to the cost of buying the lawnmower (along with any other costs).
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