Guides · Bookkeeping
Break-even analysis basics
Break-even is the level of sales at which a business exactly covers its costs — no profit, no loss. Knowing it tells an owner how much has to be sold before anything earned is actually earned.
Fixed costs, variable costs, and contribution
Costs split into fixed — rent, salaries, and the like that do not move with sales — and variable, which rise with each unit sold. The gap between a sale's price and its variable cost is its contribution.
Break-even is where the total contribution from sales exactly covers the fixed costs. Below it, the business loses money; above it, each further sale adds to profit.
Why it is worth knowing
The break-even point turns a vague sense of how much a business needs to sell into a concrete number. It frames pricing, cost-cutting, and targets in the same terms.
It also stress-tests a plan: if the break-even volume looks unreachable, the plan needs changing before, not after, the money is spent.
How Lekha fits
Lekha records the sales and the bills a business runs on, which is the raw material a break-even calculation draws on.
Lekha records what your documents say and tracks the money on both sides — what you owe and what you are owed. It records and tracks; it does not replace your accountant.
Questions
- What is break-even?
- The level of sales at which a business exactly covers its costs — no profit and no loss. Below it the business loses money; above it, each sale adds profit.
- What is contribution?
- The gap between a sale's price and its variable cost. Total contribution from sales covering the fixed costs is what defines the break-even point.
- Why calculate break-even?
- It turns 'how much do we need to sell' into a concrete number, framing pricing, cost decisions, and targets, and stress-testing a plan before money is spent.