Break-Even Point as Your Guide to Profitability
The Break-Even Point answers the most important question: When do you actually start making money?
The Break-Even Point (also known as the break-even threshold) is one of the most important business metrics. It marks the point where revenues exactly cover total costs – every dollar of revenue beyond this is profit.
Break-Even in E-Commerce Context
For online stores, the question is particularly relevant: How many orders per month do you need to be profitable? The answer depends on two factors:
- 1 Fixed Costs: All costs incurred regardless of revenue – rent, salaries, software, hosting, base fees.
- 2 Contribution Margin per Order: What remains from each order after deducting variable costs (COGS, shipping, payment fees, returns)?
With $10,000 monthly fixed costs and $20 contribution margin per order, your break-even is 500 orders per month. From order 501 onwards, you're making money.
The Break-Even Formula in Detail
There are different ways to calculate break-even:
- 1 In Units: BEP = Fixed Costs / Contribution Margin per Unit
- 2 In Revenue: BEP = Fixed Costs / Contribution Margin Ratio
- 3 In Time: How many months/years until cumulative break-even?
Strategies to Lower Break-Even
There are two levers to reach profitability faster:
- 1 Reduce Fixed Costs: Flexible work models, cloud services instead of own infrastructure, outsourcing non-core functions.
- 2 Increase Contribution Margin: Better purchasing terms, higher AOV, reduced return rate, more efficient logistics.
Break-even is closely linked to Net Margin and Contribution Margin. A holistic view of these metrics gives you a complete picture of your profitability.
Break-Even Analysis for Investment Decisions
Break-even analysis is also a powerful tool for investment decisions: How many additional sales do you need to finance a new marketing campaign, an employee, or a software investment?