In one sentenceThe sales volume at which revenue equals total costs, with neither profit nor loss; it is calculated by dividing fixed costs by the contribution margin.
Simply put
Each unit you sell covers its variable cost, and part of it is left over to contribute to rent and salaries. When these contributions are enough to cover all fixed costs, you reach the break-even point.
What you sell above this point is profit, and below it is loss. You can express it in units or in riyals.
Worked example
A restaurant has monthly fixed costs of 60,000 SAR, an average meal price of 40 SAR, and a variable cost per meal of 25 SAR.
Contribution margin per meal = 40 − 2515 SAR
Break-even point in meals = 60,000 ÷ 154,000 meals
In riyals = 4,000 × 40160,000 SAR
Monthly break-even point4,000 meals (160,000 SAR)
Formula: Fixed costs ÷ Contribution margin per unit
Don't confuse it with
Margin of safetyThe margin of safety is the distance between your actual sales and the break-even point.