Business Improvement

Check your pricing and find your break-even point

Find out what each sale really earns, how many sales you need, and what a price change would do.

Beginner9 min read5 steps

What you need

Separate variable and fixed costs
Variable costs change with every sale, such as materials, delivery and commission. Fixed costs stay roughly the same, such as rent and regular salaries. Remember to count your own time in services.
2
Calculate the contribution from each sale
Contribution is what remains from each sale to pay fixed costs and create profit. The example below is for a product priced at 1,000 with a variable cost of 600.
```
Contribution per sale = Price - Variable cost
                      = 1,000 - 600 = 400

Margin %              = Contribution / Price
                      = 400 / 1,000 = 40%
```
3
Find your break-even point
This is the number of sales needed before you make any profit. With fixed costs of 200,000 a month, this example needs 500 sales.
```
Break-even sales = Fixed costs / Contribution per sale
                 = 200,000 / 400 = 500 sales a month
```
Test a price change before making it
Using the same example, a 5% price rise to 1,050 increases contribution to 450, so break-even falls to about 445 sales. You could lose some customers and still earn the same. Whether customers would accept the price is a separate question, so test it with real ones.
Compare your products
Repeat this for each main product or service and rank them by margin. Sometimes the best-selling item earns the least. That is useful evidence for changing a price, reducing a cost or promoting something else.

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