Profitability threshold: what it is and how is it used in business processes

All financial organizations already at the initial stage of their development are faced with such a concept as the threshold of profitability. This means the achievement of such a sales volume of the company, in which the proceeds will cover all costs for both production and sales of products. When determining this point, it is always necessary to separate the costs into variable and fixed, which will allow you to accurately predict the conditions for stopping production and optimize the process of manufacturing and selling goods as much as possible. In addition, such a division will allow you to determine the break-even of a business and identify the value by which the real indicator exceeds the break-even point (this is a margin of financial strength).

What is the threshold of profitability, how can it be used in practice

The threshold of profitability is the state in which the proceeds from the sale can cover expenses and does not give rise to losses, but there is no profit yet. That is, the funds after the payment of variable costs are only enough for fixed costs, and the profit is zero. The calculation of this threshold is necessary for planning profit and determining the financial condition of the company. Every businessman should strive to ensure that revenue exceeds the threshold of profitability, as this will allow to produce more goods and increase profits. However, it should be remembered that the closer production is to the threshold of profitability, the stronger the power of production leverage, that is, there is a certain limit of the threshold of profitability, exceeding which will provoke a jump in fixed costs. More here - https://en.wikipedia.org/wiki/Threshold_price-point