Break-Even calculator and formula for Amazon online sellers

written by GORILLA ROI

break even analysis

By the end of this article, you will

  • understand how to use the break-even calculator
  • know the formulas to make this break even analysis
  • learn how to extend it to your own analysis
  • know how to interpret the numbers and break even point
  • make the right decision to break even on your products

This is a spreadsheet template that you can create on your own and can be applied to any sales channel. Not just limited to Amazon

This break even calculator spreadsheet is available as part of the PRO Amazon Business Spreadsheet Package.

What is the break-even point?

The simplest definition of breaking even, is to make enough profit to cover all expenses.

But this definition isn’t helpful for Amazon or online sellers who are trying to figure out whether a product is worth adding to their portfolio.

It’s like telling a first time driver to put one foot on the accelerator and press down to drive.

Completely useless in real life.

That’s the problem with many break-even calculators and analysis because it doesn’t clearly define or break down the details for you and it is too generic.

I’ll share all the details with you and more. If you make it through the entire article, you’ll be able to nail it when analyzing your product and calculating the break even point.

Why a break-even analysis is vital

I’m going to use Amazon as the example sales channel. The concept and calculations are the same for ebay, Walmart, Etsy, Craigslist etc.

You’ve done all the work and know what product you are going to sell.

  • Finding a niche
  • Finding a supplier
  • Negotiating with the supplier
  • Received samples
  • Tested the samples
  • Made some custom changes to the product
  • Designed the packaging

Now you are ready to order, but before you go any further, it’s imperative that you’ve performed your break-even analysis.

If you think it will cost $1000 to get the product to your warehouse/home/business, it doesn’t mean you only have to sell $1000 to break even.

This is how newbies lose money. I wasted $70k because I didn’t know how to do a break even calculation properly. I underestimated everything.

Every detail that adds to the landed cost of the product must be identified. Your original estimate of $1000 could mean you need $10,000 in sales to break even.

Don’t allow yourself to be surprised. Follow the formulas and examples below.

How to calculate the break-even point of a product

The standard method of calculation is to use a fixed cost, variable cost per unit, sales price per unit and quantity sold.

I don’t like this because it is mainly for service based businesses.

Standard break-even formula method

E.g. you run a dentistry. The fixed cost per month is $10,000. Dentists are paid $50 and hour, clients are charged $100. What’s the break even revenue?

Break-even Sales = Fixed Cost / [1 - (cost ÷ sales price)]

10000 / [1 – (50/100)] = $20,000

The dentistry needs to make $20,000 in sales each month to break even.

But how does this apply if you are trying to figure out whether a PRODUCT is going to break even or not?

That’s where our version of the Break-even calculator comes into play for Amazon and online sellers.

Breakeven formula for Amazon and online sellers

I keep it simple and to the point.

The minimum break-even point is:

Sales = COGS + Fixed & Variable Costs

You get back what you spend. You don’t lose any money, you don’t lose any money.

Let’s say you are importing Tennis balls from China.

The basic theory and formula to break even is this:

SELLING PRICE - TOTAL COGS = GROSS PROFIT

Break-Even Point is when: GROSS PROFIT = TOTAL COGS

Profit is when: GROSS PROFIT > TOTAL COGS

HUGE Losses occur when: GROSS PROFIT < TOTAL COGS

If you can’t break even on your gross profits, you will bleed money on your operating and net profit.

  • Tennis balls = $1.00
  • Total COGS per unit = $8.72 (after all taxes, tariffs, fees, commissions, shipping)
  • Selling price = $18.00
  • Gross profit = $9.28

Since the gross profit is greater than the total cost per unit, you will profit. Break-even is when the gross profit is equal to the total COGS.

We’ll get into deeper examples and in-depth calculations, but the theory to understand first is that, if your gross profit is less than the total cost per unit, you will never break even with your order quantity.

Using the same example, let’s change the selling price to $15 because you “think” you have plenty of margin since the tennis balls “only” cost $1.

  • Tennis balls = $1.00
  • Total COGS per unit = $8.72 (after all taxes, tariffs, fees, commissions, shipping)
  • Your selling price = $15.00
  •  Your gross profit = $6.80
  • Quantity ordered = 1000

The total COGS is $8.72 x 1000 = $8720

Gross profit if you sell 1000 units = $6800

In this scenario, gross profit is less than the total COGS. You lost money.

If the quantity is 5000, see what happens.

  • Total COGS is $8.72 x 5000 = $43,600
  • Gross profit if you sell 5000 units = $34,000

You just spent $43,600 to make $34,000.

The more you sell, the more you lose. Hence the reason why it’s vital that you know your numbers.

How to enter fixed and variables costs to the formula

Think of fixed costs as the expense required to run your business.

Regardless of whether you sell anything, you have to pay for the things like:

  • lease
  • electricity
  • waste disposal
  • insurance
  • maintenance
  • equipment
  • payroll
  • bookkeeping
  • and so on

These are your fixed costs. It mostly stays the same.

But entering the total sum like $1500 or $7000 is not the best practice.

Why?

If you already have 9 products and you are looking at your 10th product, the 10th product is not supposed to cover all your business expenses. The costs should be spread out and shared across your entire portfolio of 10 products.

You do this by entering your operating costs as a percentage.

OPERATING COSTS = Total Operating Expenses ÷ Total Revenue 

If you use cash basis accounting, it could be 20-30%.

If you use accrual basis accounting, it could be 15-25%.

This percentage is then applied to the selling price and used as the fixed+variable cost.

Example of how to calculate variable fixed costs break even product
Example of how to calculate variable fixed costs break even point of product

E.g. If Tennis balls selling price is set to $10 with operating costs at 15%, then $1.50 will be used up for fixed and variable costs.

By using a percentage, you can keep it consistent across all your products, and also easily adjust it based on how your business is doing.

If your business is booming and margins are increasing, you can decrease the percentage a little. Or if expenses are going up, increase the percentage.

Much better than going over your statements and summing up expenses all the time.

When you factor in fixed and variables costs like referral fees, return rates, operating costs, you are calculating your operating income. For most businesses, the operating income is very close to the net income.

(Operating income is NOT net income. You must pay taxes on operating income. Net income is the profit after taxes. Don’t confuse the two and end up with a nasty surprise.)

PRICE - COGS - Fixed & Variable Costs = OPERATING PROFIT

Best Break-Even Point is when: OP PROFIT = TOTAL COGS

Best Profit is when: OP PROFIT > TOTAL COGS

Losses occur when: OP PROFIT < TOTAL COGS

All break-even point formulas of a product

Break-even sales = COGS + Fixed & Variable Costs

Break-even units = Break-even Sales ÷ Selling price

Break-even months = Break-even units ÷ Est units sold per month

Gross Profit per unit = Selling price - COGS per unit

Gross Profit Margin = Gross Profit per unit ÷ Selling Price x 100

Operating Profit per unit = Selling price - COGS per unit - fixed & variable costs per unit

Operating Profit Margin = Operating profit per unit ÷ Selling price x 100

Break-even spreadsheet calculator

break-even calculator spreadsheet with formulas template amazon ebay ecommerce

Click the image to see the published full size and preview of the break-even calculator.

This calculator is split up into 3 sections.

  1. Your COGS
  2. Your Variable & Fixed Costs as a %
  3. Break-even analysis and chart
break even cogs detailed breakdown
break even cogs detailed breakdown

Under the COGS section, add all break downs associated with your COGS. The more detailed the better. It’s a spreadsheet so you can edit the labels.

The sum of the COGS is shown at the bottom.

variable fixed costs break even
variable fixed costs break even

The variable and fixed costs section is the same as explained above. Enter it as a percentage of your total sales.

It will then calculate the dollar amount based on your selling price. Variable costs are always changing based on your selling price as it is based on a percentage.

break even analysis chart
break even analysis and chart for a product

Based on your COGS and costs, the break even analysis shows the margins based on the selling price, and the right chart shows how many units you’ll need to sell to break even, the total sales you need to break even and how many months it will take to break even.

Here’s a video explanation of the break-even spreadsheet.

Break even calculation definitions

Break-Even UnitsNumber of units you must sell to make back your total investment from the profits.
Break-Even SalesTotal amount in sales you must sell to make back your total investment from the profits.
Break-Even MonthsTotal number of months it will take to make back the investment from the profits.
Cost of Goods SoldCost to make the product
Inspection costCost associated with any factory or product inspections
Duties&TariffsAny additional import duties and tariffs that must be accounted for in the cost
Freight costCost of shipment
Extra labor costIf extra labor is required from your warehouse or from a packing service
FBA FeesPer unit FBA fees for pick and pack
Extra shipping to AmazonExtra costs to ship the item to Amazon
Amazon Referral FeeThe % fee for your Amazon product category
Return rateThe return rate for your account. Find it in your business sales report in seller central.
Operating costsinclude if you want to calculate break even after accounting for returns.

Delete if you want to calculate break even based on gross profit only.

includes business and overhead expenses like:- Advertising, payroll, utilities, rent, legal, fees and interest, marketing, taxes, travel, rent/lease, maintenance, licenses, supplies, software, hardware

Total Cost Per UnitThe total sum of the landed cost and extra variable costs
Profit Margin Per UnitProfit in dollars
Profit Margin RatioProfit as a percentage. If operating costs are excluded, it’s closer to a gross profit margin. If operating costs are included, it is Operating Profit.

Other break-even calculators

Standard break-even calculators

  • https://www.nase.org/business-help/calculators/business/breakeven-analysis-calculator
  • https://www.nase.org/business-help/calculators/business/breakeven-analysis-calculator

Break even calculators for online sellers and Amazon sellers

What is Gorilla ROI?

Gorilla ROI automatically pulls Amazon data into Google sheets for you to make sense of the data without the inconvenience of manually downloading, sorting and updating spreadsheets.

Learn how you can centralize your data and use it to increase your ROI.

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