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What Is 'Breakeven'?

Breakeven is the point where your business' total revenue exceeds its total expenses. The more revenue you bring in and the less you spend, the more quickly you'll reach Breakeven. After Breakeven, your business is truly profitable and self-sustaining.

Josh Kaufman Explains 'Breakeven'

Assume your business is bringing in $100,000 per month, and you’re spending $50,000 each month in operating expenses. Are you making money?

It depends.

When you create a new business, it typically takes a while before you’re able to bring in more than you spend. Systems need to be created, employees hired and trained, and marketing efforts launched before revenue starts coming in. During your ramp-up period, those expenses add up.

Let’s assume our hypothetical business took a year’s worth of $50,000 per month expenses to launch — that’s $600,000. Now that the business is bringing in $50,000 per month more than it needs to cover operating expenses, it can start to recoup that initial investment.

Breakeven is the point where your business’s total revenue exceeds its total expenses — it’s the point where your business starts creating wealth instead of consuming it. Assuming the business keeps bringing in $100,000 each month and expenses stay the same, it’ll take 12 months to pay down the initial investment. After that, the business will really be making money — before that, it just looks like the business is profitable.

Your breakeven point will change constantly. Revenue naturally fluctuates, as do expenses. Keeping a running tally on how much you spend and how much revenue you collect from the start of your business’s operations is the only way to figure out whether or not you’ve actually made money.

The more revenue you bring in and the less you spend on an ongoing basis, the more quickly you’ll reach Breakeven, making your business truly self-sustaining.

Questions About 'Breakeven'

• What is your breakeven point? Have you calculated it?
• Are you moving closer to breakeven, or sinking deeper into debt?

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"It is unusual, and indeed abnormal, for a concern to make money during the first several years of its existence. The initial product and initial organization are never right."

Harvey S. Firestone, founder of the Firestone Tire and Rubber Company

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