A breakeven analysis is important in evaluating a business investment because it allows owners or operators to understand the costs that must be overcome to earn a profit. If the breakeven point is perceived as too challenging, operators may opt to avoid the risk of making the investment.
People use a breakeven analysis to evaluate startup business decisions, business expansions and projects. Before a company can earn a profit, it must generate enough revenue to cover startup costs, fixed costs and variable costs associated with selling solutions. The faster a breakeven point can be achieved, the sooner a company can earn a profit and pay off any debt tied to the investment.