How to calculate break-even
Contribution margin per unit = Price per unit − Variable cost per unit
Break-even units = Monthly fixed costs ÷ Contribution margin per unit
Break-even revenue = Break-even units × Price per unit
Contribution margin is the money each sale "contributes" toward paying your fixed costs. Once fixed costs are covered, the contribution margin becomes profit.
Worked example
A store selling yoga mats has these numbers:
| Input | Value |
|---|
| Monthly fixed costs | $9,000 |
| Price per unit | $60 |
| Variable cost per unit | $35 |
| Result | Calculation | Value |
|---|
| Contribution margin per unit | $60 − $35 | $25 |
| Break-even units | $9,000 ÷ $25 | 360 units |
| Break-even revenue | 360 × $60 | $21,600 |
The store must sell 360 mats a month, or about 12 a day, just to cover costs. Mat number 361 is the first one that earns profit, and each one after that adds $25.
Should advertising be fixed or variable?
This is the most common question, and the answer changes your result a lot.
- If you set a fixed monthly ad budget (say $3,000 regardless of results), treat it as a fixed cost. In the example above, fixed costs become $12,000 and break-even rises to 480 units.
- If you think of ad spend per order (your cost per acquisition), add it to the variable cost. With a $10 CPA, variable cost becomes $45, contribution margin drops to $15, and break-even jumps to 600 units.
Both are valid. Per-order is usually more honest for stores that scale ad spend with sales, because it shows how your acquisition cost squeezes the margin on every unit. To set a CPA that keeps you profitable, use the target CPA calculator.
Reading your result
A break-even number is only useful when compared with reality:
- Compare to current volume. If you sell 300 units a month and need 360, you know the gap is 60 units, not a vague shortfall.
- Check your contribution margin ratio (contribution margin ÷ price). In the example it is about 42%. The lower this ratio, the more revenue you need for every dollar of fixed cost.
- Watch how sensitive it is. Small changes in price or variable cost move break-even far more than most owners expect. A $5 price increase in the example cuts break-even from 360 to 300 units.
There is no "good" break-even number in isolation. A high one is fine for a store with strong demand; a low one can still be out of reach if traffic is limited.
How to lower your break-even point
- Raise contribution margin per unit. Modest price increases, cheaper packaging, renegotiated shipping rates and supplier discounts all reduce the units required.
- Increase order value. Bundles and add-ons spread per-order costs like shipping and payment fees across more revenue. The AOV calculator helps you track this.
- Cut fixed costs you do not use. Unused apps and subscriptions add up quickly.
- Make ad spend more efficient. In Google Shopping, excluding search terms and products that spend without converting lowers your effective cost per sale, which raises contribution margin when ads are treated as variable.