The break-even price is the lowest price you can sell something at without losing money. Every dollar below it is a dollar you're paying to move the item. Every dollar above it is profit. It's the single most useful number to know before you source, list, or run a sale, and it's easy to get wrong in a way that feels right.
The mistake: adding a percentage to your costs
Here's how a lot of people price. Add up what the item costs you to get out the door, add 20% on top for profit, and list it at that. Let's try it on eBay with a $10 item, $4.50 shipping, $0.50 packaging, and eBay's $0.40 per-order fee:
You planned for $3.08 in profit. You got $0.57, a 3% margin.
The problem is that eBay's fee is a percentage of the price, and the price includes your markup. When you raise the price, the fee rises too. You can't solve for the price by adding. You have to divide.
The formula
Split your costs into two groups.
- Fixed costs are dollar amounts per sale that don't change with the price: the item (landed cost, not just what the supplier charged), shipping, packaging, and flat per-order fees.
- Percentage costs scale with the price: marketplace fees, payment processing, and percentage-based ads.
At the break-even price, whatever is left after the percentage fees has to exactly cover the fixed costs:
price × (1 − fee %) = fixed costs
break-even price = fixed costs ÷ (1 − fee %)
For the example above: $15.40 ÷ (1 − 0.136) = $15.40 ÷ 0.864 = $17.82. Sell at $17.82 and you make exactly zero. Sell at $17 and you lose money on every order, even though $17 is above your $15.40 in costs.
Pricing for a target margin
To leave a profit margin on top (profit as a percentage of the sale price), subtract it alongside the fee:
target price = fixed costs ÷ (1 − fee % − margin %)
For a 20% margin: $15.40 ÷ (1 − 0.136 − 0.20) = $15.40 ÷ 0.664 = $23.19. Check it: eBay takes 13.6% of $23.19, which is $3.15. $23.19 minus $3.15 minus $15.40 leaves $4.64, and $4.64 is 20% of $23.19. It works.
That's a big gap from the $18.48 you'd get by adding 20%. And it's the difference between a product that pays you and one that just keeps you busy.
What counts as a cost
Break-even is only as good as the costs you put in. These are the ones that get missed:
- Landed cost, not unit price. If you import, the item cost includes freight, duties, and any prep or labeling. A $1.20 product from a supplier can be $2.50 by the time it's sellable. See how to calculate landed cost.
- Packaging. Mailers, boxes, tape, tissue, inserts, labels. Small per order, but there on every order.
- Fees on shipping and tax. eBay and Walmart charge their percentage on buyer-paid shipping too. eBay includes sales tax.
- Ads. If you need ads to sell an item, they're part of the cost of selling it.
- Returns. If 5% of orders come back and each return costs you $6, that's $0.30 per sale. See how returns eat your profit.
- Fulfillment and storage if you use FBA or WFS. These are fixed dollar amounts, so they go in fixed costs.
Break-even on different platforms
The same item has a different break-even price on every platform because fees differ. Using the same $15 in fixed costs (before per-order fees):
| Platform | Fees used | Break-even | 20% margin price |
|---|---|---|---|
| eBay | 13.6% + $0.40 | $17.82 | $23.19 |
| Amazon or Walmart, you ship | 15% | $17.65 | $23.08 |
| Amazon, electronics | 8% | $16.30 | $20.83 |
| Etsy | 9.5% + $0.45 | $17.07 | $21.91 |
| Your Shopify store | 2.9% + $0.30 | $15.76 | $19.84 |
Your own store has the lowest break-even by a lot, since there's no marketplace fee. But you're paying for traffic another way, usually ads, so add those in before you decide your website is the most profitable channel.
Using break-even to decide what to source
The best time to calculate break-even is before you buy anything. Look at what similar items actually sell for (sold listings on eBay, the current Buy Box price on Amazon), then work backward:
- Take the realistic selling price.
- Multiply by (1 − fee % − your target margin) to get the most you can spend on fixed costs.
- Subtract shipping, packaging, fulfillment, and per-order fees.
- What's left is the most you can pay for the item, landed.
Example: comparable items sell for $25 on Amazon with FBA. At 15% referral and a 25% target margin, you can spend $25 × 0.60 = $15 on fixed costs. Take off about $4.76 for fulfillment and $0.70 for inbound, and your maximum landed cost is about $9.54. If the supplier's price plus freight and duties comes in above that, walk away, or negotiate.
Questions people ask
What is the break-even price formula?
Break-even price = fixed costs ÷ (1 − percentage fees). Fixed costs are dollar amounts you pay per sale no matter the price: the item, shipping, packaging, and flat fees. Percentage fees are things like a 13.6% eBay fee or 15% referral fee.
How do I price for a 20% profit margin?
Use target price = fixed costs ÷ (1 − fee percentage − 0.20). If fixed costs are $15.40 and the fee is 13.6%, the price is $15.40 ÷ 0.664 = $23.19.
Should I include ad spend in my break-even price?
Yes, if you advertise. Ads like eBay promoted listings are a percentage of the sale, so add the ad rate to the fee percentage. Cost-per-click ads can be estimated as a dollar amount per sale and added to fixed costs.
What if my break-even price is higher than the market price?
Then the item doesn't work on that platform at those costs. Your options are a cheaper supplier, cheaper shipping or packaging, a different platform with lower fees, selling it in a bundle, or skipping it.