Every product has a minimum viable price: the floor below which you lose money on every sale regardless of volume. Knowing your breakeven price before you set a selling price is not optional, it is the starting point for any rational pricing decision.
What Breakeven Price Means
The breakeven price (sometimes called the minimum selling price or cost-plus floor) is the price at which your total revenue on a given number of units exactly covers your total costs.
At the breakeven price:
- Revenue = Total costs
- Profit = $0
Below the breakeven price, you lose money on every unit. Above it, you make money. How far above it you can realistically price determines your actual profit.
The Formula
Breakeven price = (Fixed costs ÷ Units sold) + Variable cost per unit
Fixed costs are the costs you incur regardless of how many units you sell: rent, salaries, software, insurance.
Variable costs are the per-unit costs that scale with sales: materials, packaging, shipping, transaction fees.
Units sold is your expected sales volume for the period. This is a projection, so run the calculation at several scenarios (optimistic, realistic, conservative).
Example
A seller has:
- Fixed costs: $3,000/month (warehouse, tools, labor allocation)
- Variable cost per unit: $12 (COGS + shipping + fees)
- Expected monthly sales: 200 units
Fixed cost per unit = $3,000 ÷ 200 = $15 Breakeven price = $15 + $12 = $27 per unit
At $27, they break even. At $35, they earn $8 per unit × 200 units = $1,600/month in profit.
Volume Sensitivity
Breakeven price is not a fixed number, it changes with volume. If you sell 400 units instead of 200:
Fixed cost per unit = $3,000 ÷ 400 = $7.50 Breakeven price = $7.50 + $12 = $19.50 per unit
This is why scaling matters: higher volume spreads fixed costs across more units, lowering the breakeven price and expanding margin. Understanding this relationship helps you evaluate whether a higher-volume, lower-price strategy makes sense versus a lower-volume, higher-price strategy.
Breakeven Price vs. Break-Even Units
These are two related but different calculations:
- Breakeven price: Given a target volume, what is the minimum price you must charge?
- Break-even units: Given a target price, what is the minimum volume you must sell?
Both are tools for understanding the same cost structure from different angles. Use whichever variable you have less control over to solve for the one you can set.
Using Breakeven Price in Pricing Decisions
Breakeven price is your floor, not your target. A few applications:
Competitive response: If a competitor drops their price aggressively, knowing your breakeven price tells you the absolute minimum you could match without losing money (at current volume).
New channel evaluation: If listing on a new marketplace adds 5% in fees, your breakeven price increases. Does the new channel price adequately still cover the new floor?
Discount analysis: Can you offer a 20% off sale and still be above your breakeven price at the discounted price?
Product viability: If your breakeven price at realistic volume is already close to what the market will bear, the product has thin or negative margin potential. Better to know this before investing in inventory.