Break-Even Calculator
Break-even is fixed costs divided by contribution margin per unit.
Fixed vs variable, and why it matters
Fixed costs do not change with volume: platform subscriptions, software, salaries. Variable costs scale with each unit: product cost, packaging, payment fees.
If contribution margin is negative, no volume will save you. That is the first thing to check before optimising anything else.
A worked example
Suppose your fixed costs are $1,200 a month: software subscriptions, insurance, hosting and the annual fee on a business account. You sell one product at $45 with a landed cost of $18, and the platform charges a 13% fee plus $0.30 per order.
Contribution per order is $45 minus $18 minus $6.15 in fees, which is $20.85. Divide fixed costs by contribution: 1,200 / 20.85 = 57.6. You need 58 orders a month before the business makes anything.
The useful part is what happens next. At 58 orders you break even. At 100 orders you keep 42 x $20.85 = $875. At 40 orders you lose 18 x $20.85 = $375 a month, every month, for as long as the fixed costs stay where they are.
What belongs in fixed costs
A cost is fixed if it does not change when you sell one more unit. That usually includes platform subscriptions, your domain and hosting, accounting software, insurance, and any tool you pay for monthly whether or not you make a sale. It also includes depreciation on equipment you have already bought.
What does not belong there: product cost, shipping, payment processing, and commission. Those scale with each sale, so they belong in the contribution calculation. Putting a per-sale cost into the fixed bucket makes your break-even look far away and your margin look better than it is.
The mistake that flatters the number
Advertising is the usual trap. If you spend $500 a month on ads regardless of results, it is a fixed cost and belongs above the line. If you pay per acquisition, it is variable and belongs below the line, reducing contribution per order.
Most sellers run a mix and then treat the whole ad budget as fixed. That understates how many orders are needed to cover the variable ad cost of each one, and the business looks profitable at a volume where it is not.
FAQ
- Should payment fees be variable?
- Yes. They scale with revenue, so they belong in the variable cost.
- How do I lower break-even?
- Raise price, cut variable cost, or reduce fixed costs. In that order of impact.
- Does break-even include owner salary?
- It should if you are running this as a business rather than a hobby.