Planning
Break-even analysis: how many units must you sell to cover your costs?
Learn the break-even formula for online sellers with a worked example, how to round units up, and what to do when your price can never cover your costs.
· 2 min read
Before you launch a product or a new store, one question matters: how many units do I have to sell before I stop losing money? Break-even analysis answers it with a short formula, and it also shows you how sensitive your plan is to price and cost.
Fixed and variable costs
- Fixed costs are paid once or on a schedule no matter how many units you sell, such as product photography, tooling or samples, store software and a launch budget.
- Variable costs rise with every unit, such as the product itself, packaging, shipping and per-sale fees.
The formula
Contribution per unit = Selling price - Variable cost per unit
Break-even units = Fixed costs / Contribution per unit
Contribution is what each sale adds toward paying off the fixed costs. Once the total contribution equals the fixed costs, you have broken even.
A worked example
Your fixed costs are $5,000. You sell at $50 and your variable cost is $30 per unit, so each sale contributes $20.
| Item | Calculation | Result |
|---|---|---|
| Contribution per unit | $50 - $30 | $20 |
| Break-even units | $5,000 / $20 | 250 units |
| Break-even revenue | 250 x $50 | $12,500 |
If you expect to sell 25 units a month, that is 10 months before the launch costs are covered. Sales of 300 units would leave a profit of 50 x $20 = $1,000.
Always round up
You cannot sell part of a unit. If fixed costs were $5,001, the formula gives 250.05 units. At 250 units you are still $1 short, so you need 251. Round break-even units up, never down.
When you can never break even
If your selling price is equal to or lower than your variable cost, each sale adds nothing or loses money, so selling more makes the problem bigger. No number of units will cover your fixed costs. The fix has to be a higher price or a lower variable cost, not more volume.
Try your own figures in the Break-even Calculator. If the answer is too high, test a higher price with the Product Pricing Calculator, and check the margin on each sale with the Profit Margin Calculator.
This guide is general information with simplified examples. It is not financial, tax or legal advice. Your real fees, costs and results will differ, so check them against your own marketplace and carrier statements.