Your break-even price is the lowest price at which you stop losing money. Take a $10 product with $5 shipping, 13% in percentage fees and a 30 cent fixed fee. Its break-even price is $17.59. Go under that and every sale costs you money, even if the orders keep coming in.
The fee rates here are examples. Use the rates from your own platform.
What is the formula?
Add up the costs that don't change with the price. Then divide by what is left of each dollar once the percentage fees have taken their share.
Break-even price = (Cost + Shipping + Fixed fees) / (1 - Percentage fees)
For the example: (10 + 5 + 0.30) / (1 - 0.13) = 15.30 / 0.87 = $17.59.
Check it. At $17.59 the percentage fees are $2.29, plus the 30 cents, so fees come to $2.59. Take $15 of cost and $2.59 of fees off the price and nothing is left. That is break-even.
Why isn't break-even just my cost?
Because fees come out of every sale. Your cost and shipping are $15, but at the break-even price the fees are another $2.59. So break-even sits $2.59 above your costs, and that gap grows if your fee percentage goes up.
A price of $15.30 looks safe because it covers the costs plus the fixed fee. It doesn't. The percentage fees on it come to $1.99, and you'd lose that on every sale.
How big a discount can I afford?
This is where break-even earns its keep. Say you price at $26.84, which keeps a 30% margin on these numbers (I explain that formula in the pricing guide). Here is what each discount does:
| Discount | Price | You keep | Margin |
|---|---|---|---|
| None | $26.84 | $8.05 | 30.0% |
| 10% | $24.16 | $5.72 | 23.7% |
| 20% | $21.47 | $3.38 | 15.7% |
| 30% | $18.79 | $1.05 | 5.6% |
| 34% | $17.71 | $0.11 | 0.6% |
| 35% | $17.45 | -$0.12 | -0.7% |
A 20% discount sounds mild. It cuts your profit from $8.05 to $3.38, which is a drop of 58%. Fees and costs don't shrink when the price does.
The most you can take off is where the price meets break-even:
Maximum discount = 1 - Break-even price / Normal price
So 1 - 17.59 / 26.84 = 34.5%. Past that, each sale loses money. Work this out before you join a sale, not after.
What does break-even leave out?
Only what you put in. It doesn't know about ad spend, returns, packaging or tax unless you add them. If you spend $2 on ads for each order, that's another fixed cost. Add it to the top of the formula and break-even moves up. The calculator has an Ads and returns section for exactly this.
I list the usual extras in a pricing checklist. It doesn't include your own time, which is yours to value.
What is the spreadsheet version?
Put cost in A2, shipping in B2, fixed fees in C2, and the percentage fees as a decimal in D2 (0.13 for 13%). Then:
=(A2+B2+C2)/(1-D2)
That returns 17.59 for the example. For the maximum discount, put your normal price in E2 and use =1-F2/E2, where F2 holds the break-even result.
How do I check it in the calculator?
- Open the multi-platform calculator.
- Enter your cost, shipping, commission, payment fee and flat fee.
- If you run ads or get returns, fill in the Ads and returns section too.
- Read the Break-even value in the results.
- Type different prices into the price box and watch the net profit change. You will see it hit zero at the break-even price.
Who is writing this?
I'm Saqib, the developer behind PayoutCalc. I haven't run an online shop. This is arithmetic, and every number here was checked in the calculator. If you spot a mistake, tell me and I'll fix it.