Break-even price
The break-even price is the price at which a sale covers its own costs exactly, with nothing left over. Below it, every unit sold loses money.
Updated
- Formula
- break-even price = per-unit costs ÷ (1 − percentage costs)
Worked example
A throw has these costs per unit:
- unit cost $21.40
- packaging $1.20
- pick and pack $2.85
That is $25.45 in fixed amounts, plus payment processing at 2.9% of the price.
$25.45 ÷ (1 − 0.029) = $26.21
At $26.21 the fee is $0.76, the other costs are $25.45, and nothing is left. Simply adding 2.9% to $25.45 gives $26.19, two cents short, and the shortfall grows with larger percentages such as marketplace commissions.
What it is for
- Clearance. It is the floor for a markdown that should not lose money per unit.
- Discount codes. The gap between your price and the break-even price is the largest discount a single sale can absorb.
- Wholesale. It shows whether a trade price still covers the product.
In Cogsy
Cogsy flags variants whose margin is negative, which are the ones already priced below break-even on the costs you have entered. Percentage costs are recalculated from each variant’s current price.
Questions
- Why not just add the costs up?
- Because some costs are a percentage of the price. Raising the price to cover them raises them too, so the fixed costs have to be divided by what is left after the percentage.
- Does the break-even price include overhead?
- Not in this per-sale sense. It covers only the costs caused by the sale. Covering rent and salaries is a question of volume above this price.
Related
Glossary
Contribution marginContribution margin is the price minus every cost that varies with a sale, including fulfilment and payment fees. The formula and a worked ecommerce example.
Glossary
MarkupMarkup is the amount added to cost to reach the price, as a percentage of cost. The formula, how to convert between markup and margin, and a conversion table.
Cost type
Payment processing feesHow to count card processing fees in your margin per product, as a percentage of price plus a fixed part, and why they stay out of Shopify's cost per item.