What is Breakeven Point?

How to Work Out a Breakeven Point

Split your costs into two piles.

• Fixed costs stay put in a slow month or a busy one: rent, your Shopify plan, app subscriptions, wages.
• Variable costs arrive with every order, like the product, packaging, shipping labels and card fees.

Subtract a sale's variable costs from its price and you get the contribution margin. That's what each sale puts toward fixed costs. Once they're covered, anything left is profit.

Breakeven units = Fixed costs ÷ (Price − Variable cost per unit)

Want it in sales revenue? Multiply by your price.

What 20% Off Does to the Math

A discount lowers your price, not your costs. Each sale brings in less, so you need more of them.

Say the roaster runs 20% off. A bag now sells for $19.20. Costs are still $14, so each bag contributes $5.20 instead of $10.

• Breakeven at full price: $3,000 ÷ $10 = 300 bags
• Breakeven at 20% off: $3,000 ÷ $5.20 = about 577 bags

That's 92% more bags to cover the same costs. The price fell by a fifth, but what each bag brings in almost halved. That 92% holds at any volume, too. Selling 500 bags? You'd need about 962 on sale to keep the same profit.

Run your own numbers with our percentage discount break-even calculator. Still choosing the number? See how to find your best discount percentage. Growth Suite, our app, lets you set a maximum discount percentage so you stay inside what your math allows.

Getting the Inputs From Shopify

Shopify has some of the inputs. The rest come from your own records, and you do the division.

• Product cost: fill in the "Cost per item" field for each product or variant. Without it, you can't tell what a sale contributes.
• Fixed costs: your Shopify bills list your plan and app charges. Rent and wages you'll pull from your own books.
• Fees and shipping: card fees are in your payment provider's payout or transaction details. If you pay for shipping, add your average label cost per order.

Use a normal month. A one-off bill, like a photo shoot, makes breakeven look higher than it is.

Why Breakeven Isn't a Finish Line

The most common mix-up is treating breakeven as a good result. You've paid every bill and kept nothing, so there's no room for returns, a slow week or a supplier price rise.

It can also mislead if your inputs are off:

• Ad spend left out. If you pay for ads to win each sale, that's a variable cost. At $6 of ads per bag, each bag contributes $4, and breakeven jumps from 300 bags to 750.
• A shifting product mix. One breakeven number rests on an average margin. If low-margin items start selling more, the real breakeven moves up.
• Fixed costs that step up. More orders can mean more staff or space, which pushes breakeven higher.

Redo the math whenever prices, costs or ad spend change.

Related Terms

• Cost of Goods Sold (COGS): the cost of the items you sell, a key variable cost.
• Gross Margin: the share of each sale left after product costs.
• Profit Margin: the share of sales you keep once every cost is paid.
• Discount Percentage: how much of the price a discount takes off.
• Return on Investment (ROI): what you earn back compared with what you spent.