What is Break-Even Analysis?
Break-even analysis is a technique that identifies the level of sales (in units or revenue) at which total revenue exactly equals total costs, leaving zero profit or loss, used to size minimum viable sales targets.
How It Works
- Break-even units = fixed costs / (price per unit – variable cost per unit).
- Break-even revenue = break-even units × price.
- Contribution margin = price – variable cost per unit.
- Used in pricing, product viability, and expansion decisions.
Saudi Context
Saudi entrepreneurs use break-even analysis when applying for SIDF or Monsha’at funding, since both require a minimum sales projection that demonstrates the business can cover Saudization-driven payroll and ZATCA-compliant overheads within a defined ramp-up period.
Example
A Saudi café has fixed costs of SAR 50,000/month, sells coffee at SAR 15 with variable cost SAR 6. Break-even units = 50,000 / (15 – 6) = 5,556 cups/month. Break-even revenue = SAR 83,340.