Break Even Point (BEP) is a business concept used to determine how much revenue a company must generate in order to cover its expenses. Contribution margin is a key concept for understanding the BEP. It is calculated as total sales minus variable costs, which are expenses that fluctuate with production and include items such as materials and labor. The BEP calculation is based on the amount of fixed costs, or operating expenses that remain the same regardless of production levels, divided by the contribution margin per unit. Once this number is reached, all costs have been covered and any additional income goes straight to the company’s bottom line. Understanding your company’s BEP can help you set realistic goals and make better decisions when it comes to pricing and costs.