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E-commerce Break-Even Point
profitabilityThe sales volume at which total revenue exactly equals total costs, resulting in zero profit and zero loss. Every unit sold beyond this point generates profit.
Definition
The break-even point is a foundational metric for any business. It tells you exactly how many units you must sell, or how much revenue you must generate, before your business starts making money. Below the break-even point, every day of operation costs you money. Above it, each additional sale flows to profit.
Knowing your break-even point is critical for decision-making. Before launching a product, it tells you whether your price-cost structure is viable given realistic sales volumes. When planning for the year, it tells you when in the calendar year the business moves from loss to profit. When evaluating a price change, it reveals the new volume required to maintain profitability.
Break-even analysis has limitations. It assumes a constant selling price and constant variable cost per unit, which may not hold at different volumes. It also assumes all units produced are sold. Despite these simplifications, it remains one of the most useful planning tools because it forces clarity about the relationship between price, costs, and volume.
Formula
Break-Even Point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) Example
A startup has fixed costs of $15,000/month, sells a product for $75, and has variable costs of $30 per unit. Break-even = $15,000 / ($75 - $30) = $15,000 / $45 = 334 units per month.
Related Terms
Contribution Margin
profitabilityThe amount each unit sold contributes toward covering fixed costs and generating profit. Calculated as selling price minus variable costs per unit.
Gross Margin
profitabilityThe percentage of revenue remaining after subtracting the direct costs of producing goods or services (COGS). It measures production efficiency before operating expenses.
Net Profit
profitabilityThe total profit remaining after all expenses have been deducted from revenue, including COGS, operating expenses, interest, taxes, and any other costs. Also called the bottom line.
Cost of Goods Sold (COGS)
ecommerceThe direct costs attributable to producing or acquiring the goods sold by a company. COGS includes materials, direct labor, and manufacturing overhead, but excludes indirect costs like marketing and administration.
Put It Into Practice
Use these calculators to apply break-even point to your own numbers.
Break-Even Calculator
Calculate your break-even point in units and revenue.
Open calculator →Profit Margin Calculator
Calculate gross, operating, and net profit margins.
Open calculator →Cost Per Unit Calculator
Calculate the true cost to produce one unit and find the right selling price.
Open calculator →