Break-even: the magic number

Lesson 7 of 13 in our free Business Money Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Business Money Basics is free for everyone.

Questions you'll answer

Illustration: Mo's fixed costs are £1,200 a month. A cake sells for £3 and its ingredients and box cost £1. How many cakes a month to break even?

Mo raises the price to £4 (variable cost still £1, fixed costs still £1,200). What's the new break-even?

Fact: “Cutting fixed costs lowers the break-even point.” — Less to cover means fewer sales needed.
Fact: “If the price is below the variable cost, no amount of sales will ever break even.” — Each sale loses money, so more sales only dig deeper.
Myth: “Break-even means the business has made a profit.” — It means zero profit and zero loss. Profit starts after it.