difference between payback period and breakeven calculations

business model
Neue Antwort am 31. Aug. 2023
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Anonym A fragte am 24. Okt. 2021

Are breakeven calculations always based on how many units, costs etc..it takes to recoup the investment in 1st year? How are these calculations different from pay back period calculations?

I see in breakeven it's typically contribution margin per unit x # of units = Fixed cost, whereas in payback we look at the “additional” profit or cost savings we can have per year x # of years = investment cost.

Did i understand this correctly?

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Content Creator
antwortete am 25. Okt. 2021
#1 Coach for Sessions (4.000+) | 1.500+ 5-Star Reviews | Proven Success (➡ InterviewOffers.com) | Ex BCG | 10Y+ Coaching

Hi there,

The payback period refers to the time needed to recover an investment

The breakeven point refers to the situation where total revenues are equal to total costs. The question is normally related to the quantity required to reach that point.



Let’s say that you have the following:

I = Initial investment

CF = Yearly cash flow of the investment

Assume for simplicity that the yearly cash flow is constant and there is no time value of money.

The payback period would be :

Payback period = I / CF

If the cash flow is not constant or there is time value of money, the formula becomes more complex, due to the fact the cash flow changes every year.



Let’s assume your goal is to find the quantity to reach breakeven.

You can just rearrange the breakeven formula, which is the following:


⇔ p*q-c*q-FC=0


  • R= Revenues
  • VC= Variable Costs
  • FC = Fixed Costs
  • p = Price
  • q = Quantity
  • c = Variable Cost per Unit

To calculate the quantity, you can rearrange it as follows:


⇔ q=FC/(p-c)


Hope this helps,


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antwortete am 25. Okt. 2021
Bain | EY-Parthenon | Roland Berger |Former Head Recruiter | Market Sizing

Payback period is how long does it take to recover the initial investment.

Breakeven is the revenue (or # of units sold) that will result in no net income or net loss. 

Your formulas are generally correct, but I'd rather highlight that you should focus on understanding the concept, not on memorizing the formulas.

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Content Creator
bearbeitete eine Antwort am 25. Okt. 2021
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

Breakeven can be anything! 

Just one verison of breakeven is solving for years (i.e. payback).

There are so many breakevens that exist. You may be asked to solve for years, price, quantity, profit, upfront invesment cost, margins, unit cost, variable cost, fixed cost etc.

Learn how to create a breakeven across any scenario and you'll be in a good position!


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antwortete am 31. Aug. 2023
BCG 1st & Final Round interviewer | Personalized prep with >95% success rate | 7yrs coaching | #1 for Experienced Hires

Hi there,

many candidates get confused by this. In simple terms - Payback Period refers to the TIME (usually in years) it takes to recover an investment while Break Even Point refers to the VOLUME it takes to recover the fixed cost / investment.

Hope this helps.

Regards, Andi

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Content Creator
antwortete am 28. Okt. 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut


I agree with you that they are related, and until you get them fully you can get confused with them, particularly those of us who didn´t come from an Econ background and saw all the concept at once per case prep. 

Payback period, as the name says, is the period, the TIME. Breakeven is the return, and it can be in units, for instance. And it´s true that a breakeven is associated to a time (the time in which it happens, e.g., we break even after the investment in year 3 month 2). 

Hope it helps!



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Content Creator
antwortete am 28. Okt. 2021
BCG Dubai | Learn to think like a Consultant | Free personalised prep plan

These are 2 different concepts

Payback Period

It is the time taken to pay-off the initial investment through the additional profit generated.

Payback period (X) is defined by years taken for cumulative net cash flow from project C = PV + (C1+C2+C3… per year) such that C becomes just positive - which means that your annual cash flows have finally recovered the initial investment (PV).



It is the amount of business you need to do in order to reach a no-profit-no-loss situation. If you do more business than the breakeven point, you will be in profit. If you do less business than breakeven point, you will be in loss.

This sort of thing happens because of fixed costs. When you sell a product, it has a variable cost and hence a gross margin. Beyond this you have fixed costs that are spread across all the units of products you sell.

When you are selling only a small quantity of products, the fixed cost per unit is high and it eats into your gross-margin per product and goes beyond it and gives you a loss.

When you sell more units, the fixed cost per unit is smaller and and less than the gross margin - hence you have a net profit per unit sold.

At the breakeven point - the fixed cost per product is equal to the gross margin per product. Hence you are in a no-profit-no-loss scenario

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Content Creator
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