Updated:
December 30, 2025
12 min
The Number Every Ecommerce Operator Ignores Until It's Too Late
Ask most ecommerce operators their break-even point, and you'll get a blank stare or a vague guess. They know revenue. They know they're "profitable." But they don't know the exact threshold where their business stops losing money and starts making it.
This ignorance is dangerous. The average net profit margin in ecommerce lies between 4-10%. That's a thin margin between success and failure-a margin that evaporates with one bad month, one supplier price increase, or one failed campaign.
Break-even analysis tells you exactly how many units you must sell, or how much revenue you must generate, to cover all your costs. Below that point, you're burning cash. Above it, you're generating profit. Every sale beyond break-even drops straight to your bottom line (after variable costs).
Without knowing this number, you're flying blind. You might think you're profitable when you're actually subsidising losses with savings. You might panic about slow months when you're actually fine. You're making strategic decisions-pricing, hiring, marketing-without the foundational data to make them well.
The Hidden Complexity of Ecommerce Break-Even
Traditional break-even analysis is straightforward: Fixed Costs ÷ Contribution Margin = Break-Even Units. But ecommerce introduces complexity that invalidates the simple formula.
Average gross margin for ecommerce businesses is approximately 45%, representing the difference between revenue and Cost of Goods Sold-but this drops to around 10% net margin after accounting for marketing, fulfillment, and operational expenses. That massive gap is where break-even complexity lives.
Challenge 1: Variable "Fixed" Costs
Software subscriptions, warehouse minimums, and platform fees that feel fixed actually scale in steps. Your Shopify plan jumps at certain thresholds. Your 3PL has volume tiers. Your marketing tools charge by contacts.
These step-fixed costs create multiple break-even points-one for each cost tier.
Challenge 2: Blended Product Economics
Most ecommerce businesses sell multiple products with different margins. A blended break-even calculation assumes consistent margin across all products, but selling more low-margin items changes your actual break-even point.
Challenge 3: Channel-Specific Costs
Selling on your website has different economics than selling on Amazon. Marketplace fees, advertising costs, and fulfillment options vary dramatically. Each channel has its own break-even threshold.
Challenge 4: Time-Based Costs
Ecommerce has significant seasonality. Your break-even for December (high volume, higher marketing spend) differs from July (lower volume, maintenance marketing). Monthly break-even analysis is more useful than annual.
Despite these complexities, break-even analysis remains essential. The key is building models sophisticated enough to account for variation while remaining practical enough to use.
The Break-Even Formula Explained
Basic Formula:
> Break-Even Point (Units) = Fixed Costs ÷ Contribution Margin per Unit
Alternative Formula (Revenue-Based):
> Break-Even Point ($) = Fixed Costs ÷ Contribution Margin Ratio
Where Contribution Margin Ratio = Contribution Margin per Unit ÷ Selling Price
Example Calculation:
An Australian skincare brand:
Fixed costs: $18,000 per month
Average selling price: $65
Variable cost per unit: $28 (COGS $18, shipping $6, processing $4)
Contribution margin: $65 - $28 = $37 per unit
Contribution margin ratio: $37 ÷ $65 = 56.9%
Break-Even (Units) = $18,000 ÷ $37 = 487 units per month
Break-Even (Revenue) = $18,000 ÷ 0.569 = $31,635 per month
This brand must sell 487 units generating $31,635 in revenue each month just to cover costs. Only after unit 488 do they earn profit.
Break-Even Analysis Calculator Template
Use this calculator to determine your break-even point with precision.
Step 1: Calculate Monthly Fixed Costs
Fixed Cost Category | Monthly Amount |
|---|---|
Platform fees (Shopify, etc.) | $_____ |
Software subscriptions | $_____ |
Warehouse/storage | $_____ |
Insurance | $_____ |
Accounting/bookkeeping | $_____ |
Team salaries/wages | $_____ |
Office/admin | $_____ |
Loan payments | $_____ |
Other fixed costs | $_____ |
Total Fixed Costs | $_____ |
Example: $18,500 total monthly fixed costs
Step 2: Calculate Variable Costs Per Unit
Variable Cost Category | Amount Per Unit |
|---|---|
Product cost (COGS) | $_____ |
Packaging | $_____ |
Shipping/fulfillment | $_____ |
Payment processing (~2.9%) | $_____ |
Returns allocation | $_____ |
Marketplace fees (if applicable) | $_____ |
Total Variable Cost Per Unit | $_____ |
Example: $26.50 total variable cost per unit
Step 3: Calculate Contribution Margin
> Contribution Margin = Average Selling Price - Variable Cost Per Unit
Example: $75 - $26.50 = $48.50 contribution margin
> Contribution Margin Ratio = Contribution Margin ÷ Selling Price
Example: $48.50 ÷ $75 = 64.7%
Step 4: Calculate Break-Even Point
> Break-Even Units = Fixed Costs ÷ Contribution Margin
Example: $18,500 ÷ $48.50 = 381 units per month
> Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Example: $18,500 ÷ 0.647 = $28,594 per month
Step 5: Calculate Margin of Safety
> Margin of Safety = Actual Sales - Break-Even Sales
> Margin of Safety % = (Actual Sales - Break-Even) ÷ Actual Sales × 100
Example: If actual sales are 520 units:
Margin of Safety = 520 - 381 = 139 units
Margin of Safety % = 139 ÷ 520 = 26.7%
A 26.7% margin of safety means sales could drop by that percentage before the business starts losing money.
Break-Even by Channel
Each sales channel has different economics requiring separate break-even analysis.
Multi-Channel Break-Even Example:
Channel | Revenue | Avg Price | Variable Cost | CM | CM % |
|---|---|---|---|---|---|
Website DTC | $45,000 | $80 | $24 | $56 | 70% |
Amazon | $28,000 | $75 | $38* | $37 | 49% |
Wholesale | $12,000 | $40 | $22 | $18 | 45% |
Blended | $85,000 | $68 | $27 | $41 | 60% |
*Amazon variable costs include referral fees (15%), FBA fees (~$8), and PPC allocation (~$5)
Channel-Specific Insights:
Website DTC: 70% contribution margin makes this the most profitable channel
Amazon: 49% contribution margin after fees-needs 50% more volume to generate the same profit as DTC
Wholesale: Lowest margins but may have lowest acquisition costs
Channel Break-Even (Allocated Fixed Costs):
If $18,500 fixed costs are allocated by revenue percentage:
Website: $18,500 × 53% = $9,805 → BE: $9,805 ÷ 0.70 = $14,007
Amazon: $18,500 × 33% = $6,105 → BE: $6,105 ÷ 0.49 = $12,459
Wholesale: $18,500 × 14% = $2,590 → BE: $2,590 ÷ 0.45 = $5,756
Break-Even by Product
Products with different margins have different break-even contributions.
Product-Level Analysis:
Product | Price | Variable Cost | CM | CM % | Monthly Units | Monthly CM |
|---|---|---|---|---|---|---|
Hero Serum | $95 | $32 | $63 | 66% | 180 | $11,340 |
Moisturiser | $65 | $24 | $41 | 63% | 220 | $9,020 |
Cleanser | $45 | $18 | $27 | 60% | 150 | $4,050 |
Sample Kit | $35 | $22 | $13 | 37% | 85 | $1,105 |
Total | - | - | - | 61% | 635 | $25,515 |
Insights:
Hero Serum generates 44% of contribution margin from 28% of units-most efficient for profitability
Sample Kit has 37% margin-requires careful consideration of whether it drives future full-price purchases
Total contribution ($25,515) vs. fixed costs ($18,500) = $7,015 monthly profit
Product Break-Even (if sold alone):
Product | Fixed Cost Allocation | Break-Even Units |
|---|---|---|
Hero Serum | $18,500 | 294 units |
Moisturiser | $18,500 | 451 units |
Cleanser | $18,500 | 685 units |
Sample Kit | $18,500 | 1,423 units |
The Sample Kit would require 1,423 units to break even if it were the only product-highlighting why low-margin products need volume or strategic purpose (customer acquisition) to justify their place.
The 30-Day Break-Even Optimisation Sprint
Phase 1: Analysis (Days 1-10)
Week 1: Break-Even Audit
Calculate current break-even point (units and revenue)
Document all fixed and variable costs
Calculate margin of safety
Identify channel-level and product-level break-even
Phase 2: Optimisation (Days 11-25)
Week 2-3: Lever Activation
Review fixed costs for reduction opportunities
Analyse contribution margin improvement tactics
Evaluate product mix optimisation potential
Test pricing adjustments on select SKUs
Phase 3: Implementation (Days 26-30)
Week 4: Execute and Monitor
Implement highest-impact changes
Establish monthly break-even tracking
Set up variance analysis process
Define threshold alerts for margin of safety
The Break-Even Optimisation Framework
Understanding break-even reveals optimisation levers. The Break-Even Optimisation Framework provides systematic approaches to improving your threshold.
I've seen operators obsess over revenue targets while ignoring their break-even point entirely. They celebrate hitting $100K months without knowing whether they made $10K profit or lost $5K. This framework forces the analysis that separates growing businesses from growing losses.
Lever 1: Reduce Fixed Costs
Every dollar of fixed cost reduction directly lowers break-even.
Audit Opportunities:
Software consolidation (eliminate redundant tools)
Warehouse optimisation (right-size storage)
Outsourcing vs. in-house (compare total costs)
Subscription downgrades (Shopify Basic vs. Plus for smaller brands)
Insurance review (ensure appropriate coverage levels)
Impact: Reducing fixed costs from $18,500 to $16,000 lowers break-even from 381 units to 330 units-13% improvement.
Lever 2: Increase Contribution Margin
Higher margin means fewer units required to cover fixed costs.
Margin Improvement Tactics:
Negotiate supplier pricing (5-15% improvement possible at volume)
Optimise packaging costs (right-size boxes, bulk materials)
Reduce shipping costs (carrier negotiation, zone optimisation)
Lower returns rate (better product descriptions, sizing guides)
Raise prices (if elasticity allows)
Impact: Increasing contribution margin from $48.50 to $55 lowers break-even from 381 units to 336 units-12% improvement.
Lever 3: Improve Product Mix
Shifting sales toward higher-margin products improves blended break-even.
Mix Optimisation:
Feature high-margin products prominently
Create bundles that include hero products
Use low-margin items as entry points to upsell
Phase out margin-destructive products
Without this granularity, many brands end up cross-financing profitable SKUs to cover loss-making ones, instead of cutting unprofitable products or adjusting pricing strategies.
Lever 4: Scale Fixed Cost Efficiency
As revenue grows, fixed costs should grow slower-improving operating leverage.
Operating Leverage Tactics:
Automate before hiring
Negotiate fixed-cost contracts with volume components
Build systems that scale without proportional cost increases
Resist "leveling up" infrastructure prematurely
Monthly Break-Even Variance Analysis
Break-even isn't static. Monthly analysis reveals patterns and planning opportunities.
12-Month Break-Even Tracking:
Month | Fixed Costs | Avg CM | Break-Even Units | Actual Units | Margin of Safety |
|---|---|---|---|---|---|
Jan | $18,000 | $47 | 383 | 420 | 9.7% |
Feb | $18,000 | $47 | 383 | 395 | 3.1% |
Mar | $18,500 | $48 | 385 | 510 | 24.5% |
Apr | $18,500 | $48 | 385 | 485 | 20.6% |
May | $19,000 | $48 | 396 | 445 | 11.0% |
Jun | $19,000 | $47 | 404 | 390 | -3.5% |
Jul | $19,500 | $46 | 424 | 380 | -10.4% |
Aug | $19,500 | $46 | 424 | 410 | -3.3% |
Sep | $20,000 | $47 | 426 | 520 | 18.1% |
Oct | $20,000 | $48 | 417 | 580 | 28.1% |
Nov | $22,000* | $49 | 449 | 850 | 47.2% |
Dec | $21,000 | $48 | 438 | 680 | 35.6% |
*Higher fixed costs from seasonal staff, increased warehouse space
Pattern Insights:
June-August operate near or below break-even-these months need cost reduction or promotional activity
November-December generate substantial margin of safety despite higher fixed costs-volume compensates
Fixed costs creep upward through the year-requires attention to prevent margin erosion
Scenario Planning with Break-Even
Break-even analysis enables strategic scenario planning.
Scenario: Price Increase
Current state: $75 price, $26.50 variable, $48.50 CM, 381 BE units
Scenario: 10% price increase to $82.50
New variable cost: $27.40 (processing increases slightly)
New CM: $82.50 - $27.40 = $55.10
New BE: $18,500 ÷ $55.10 = 336 units
If a 10% price increase causes less than 12% volume drop, profitability improves.
Scenario: Marketing Investment
Current state: $18,500 fixed costs, 381 BE units, 520 actual units
Scenario: Add $5,000 monthly marketing spend
New fixed costs: $23,500
New BE: $23,500 ÷ $48.50 = 485 units
The additional marketing must generate at least 104 incremental units (485 - 381) to maintain current profit levels. At $48.50 CM, that's a CAC threshold of $48.08 maximum.
Scenario: Product Launch
New product economics: $60 price, $25 variable, $35 CM
Required volume to justify $3,000 monthly fixed cost allocation: $3,000 ÷ $35 = 86 units per month minimum
If the product can't achieve 86 units monthly, it dilutes overall profitability.
Common Break-Even Mistakes
Mistake 1: Using Gross Margin Instead of Contribution Margin
Gross margin excludes variable costs beyond COGS (shipping, processing, returns). Break-even calculations require contribution margin-after ALL variable costs.
Mistake 2: Ignoring Step-Fixed Costs
Your 3PL charges $2,000/month up to 500 orders, then $3,500/month. Your break-even changes at 500 orders. Map your step costs and calculate break-even at each level.
Mistake 3: Static Analysis in a Dynamic Business
Calculating break-even once and forgetting it. Costs change, margins shift, mix evolves. Recalculate monthly.
Mistake 4: Blended Analysis Hiding Problems
Overall break-even might look fine while specific products or channels are deeply unprofitable. Segment your analysis.
Mistake 5: Excluding Owner Compensation
Many founders exclude their own salary from fixed costs, making profitability appear better than reality. Include reasonable owner compensation to understand true economics.
Ecommerce gross margins average 45-48% but net margins typically drop to around 8-10%-that 35-40 point gap represents all the costs between gross profit and actual profit that break-even analysis must capture.
Break-Even and Profitability Targets
Break-even is the floor. Building targets above break-even creates the profitability you need.
Profitability Planning:
For net profit margins, 5% is considered low, 10% average, and 20% is considered high. Your break-even analysis should account for where you want to land on this spectrum.
> Target Revenue = (Fixed Costs + Desired Profit) ÷ Contribution Margin Ratio
Example:
Fixed costs: $18,500
Desired monthly profit: $8,000
Contribution margin ratio: 64.7%
Target Revenue = ($18,500 + $8,000) ÷ 0.647 = $40,959
That's $12,365 above break-even revenue ($28,594)-requiring roughly 165 additional units beyond the 381 break-even threshold.
Median net profit margin was just 3% in 2024, trending higher for 8-figure brands. Understanding how far above break-even you need to operate to achieve target margins enables realistic planning.
Monitoring Break-Even Performance
Weekly Metrics
Metric | Formula | Status |
|---|---|---|
Units to Break-Even | BE Units - MTD Units Sold | Track daily |
Revenue to Break-Even | BE Revenue - MTD Revenue | Track daily |
Projected Month-End | (Current Run Rate × Days) vs. BE | Warning if <110% BE |
Monthly Analysis
Metric | Target |
|---|---|
Margin of Safety % | >20% |
Fixed Cost Growth Rate | < Revenue Growth Rate |
Contribution Margin Trend | Stable or Improving |
Break-Even Unit Trend | Stable or Declining |
The New North Star Metric: Break-Even Velocity
Stop tracking break-even as a static threshold. Start tracking Break-Even Velocity-the rate at which your margin of safety expands or contracts month-over-month.
The Calculation:
Interpretation:
Positive velocity: Your business is accelerating away from break-even (healthier)
Zero velocity: Margin of safety stable (sustainable but stagnant)
Negative velocity: You're drifting back toward break-even (warning sign)
This metric captures momentum that static break-even analysis misses. A 25% margin of safety sounds healthy-but if it was 35% three months ago, your velocity is negative and the trend demands attention before the static metric signals distress.
The Profitability Threshold
Break-even analysis isn't complicated, but it's essential. It transforms vague intuitions about profitability into precise thresholds you can manage against.
Know your break-even point. Know it by channel. Know it by product. Update it monthly.
That single number-the point where you stop losing money and start making it-determines every strategic decision worth making.
If you don't know your break-even, you don't know your business.
