Break-Even Price: Definition, Examples, and How To Calculate It
If the stock is trading above that price, then the benefit of the option has not exceeded its cost. Assume that an investor pays a $5 premium for an Apple stock (AAPL) call option with a $170 strike price. This means that the investor has the right to buy 100 shares of Apple at $170 per share at any time before the options expire. The breakeven point for the call option is the $170 strike price plus the $5 call premium, or $175. If the stock is trading below this, then the benefit of the option has not exceeded its cost. The breakeven point (breakeven price) for a trade or investment is determined by comparing the market price of an asset to the original cost; the breakeven point is reached when the two prices are equal.
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How do you calculate a breakeven point?
This also gives sales teams insight into how flexible they can be when planning their tactics for different customers. The break-even point is the moment when a company’s product sales are equal to its overall costs. In other words, it’s where total expenses and total revenue balance out. Alternatively, the break-even point can also be calculated by dividing the fixed costs by the contribution margin. The Break-Even Point (BEP) is the inflection point at which the revenue output of a company is equal to its total costs and starts to generate a profit. Calculating breakeven points can be used when talking about a business or with traders in the market when they consider recouping losses or some initial outlay.
The sales leaders want to know the number of vacuum cleaners they’d need to sell to break even on their quarterly expenses so they can set sales metric targets for Q2. If your team does have price flexibility, then another equation may be more helpful for determining how to get back to a net-zero revenue. If you’re looking to use the BEP to set sales price points or to formulate a sales plan template, you’ll need to know how to calculate it.