Your break-even price is the lowest selling price at which a sale covers all its costs, so you make neither a profit nor a loss. For online sellers it is not simply your product cost, because marketplace fees, ads and returns grow as the price grows. The reliable formula is your fixed costs per order divided by one minus your percentage costs.
Why every seller needs this number
Knowing your break-even price gives you a floor. Anything below it loses money on every order, however many you sell. It helps you:
- Spot bad products early, before you spend on stock or ads
- Set a sensible list price with a clear profit on top
- Decide how deep a discount can go during a sale
- React to fee changes, because you can see exactly how much a new fee moves the floor
- Compare marketplaces, since the same product has a different break-even price on each
Fixed costs and percentage costs
The key to getting break-even right is splitting your costs into two groups.
Fixed costs per order stay the same whatever price you charge:
- Product cost from your supplier
- Shipping from the supplier or your postage cost
- Packaging
- Fixed per-order fees charged by the marketplace or payment provider
- Currency conversion fees on what you pay the supplier
Percentage costs rise and fall with the selling price:
- Marketplace commission (for example, a percentage of the total sale)
- Payment processing percentages
- Advertising charged as a percentage of the sale, such as promoted listings
- Your returns allowance, if you budget it as a share of revenue
This split matters. If your fees are 20% of the price, raising the price by £1 only adds 80p to what you keep.
The break-even price formula
Break-even price = fixed costs per order ÷ (1 − percentage costs)
Write the percentage costs as a decimal, so 21% becomes 0.21.
Worked example
Say you sell a hypothetical kitchen gadget. The figures below are examples, not any marketplace's real rates.
- Supplier price and shipping: £5.00
- Fixed order fee: £0.30
- Fixed costs per order: £5.30
- Marketplace commission: 13%
- Ad rate: 5%
- Returns allowance: 3%
- Percentage costs: 21% (0.21)
Break-even price = £5.30 ÷ (1 − 0.21) = £5.30 ÷ 0.79 = £6.71
Check it: at £6.71, the percentage costs are about £1.41, which leaves £5.30, exactly enough to cover your fixed costs. Below £6.71 you lose money.
From break-even to a profitable price
The same formula works for pricing with a target in mind.
Price for a target profit in pounds
Price = (fixed costs + target profit) ÷ (1 − percentage costs)
If you want £3 profit per order: (£5.30 + £3.00) ÷ 0.79 = £10.51
Price for a target margin
Price = fixed costs ÷ (1 − percentage costs − target margin)
If you want a 20% margin: £5.30 ÷ (1 − 0.21 − 0.20) = £5.30 ÷ 0.59 = £8.98
Notice how different these two prices are. A 20% margin on a low-priced item may not be enough money per order to be worth the effort, which is why it helps to look at both.
What VAT does to your break-even price
If you are VAT registered and your prices include VAT, part of each sale goes to HMRC. At the UK standard rate of 20%, the VAT inside a VAT-inclusive price is one sixth of it.
Using the same example, with percentage fees charged on the VAT-inclusive price, the break-even price becomes:
£5.30 ÷ (1 ÷ 1.2 − 0.21) = £5.30 ÷ 0.6233 = about £8.51
That is £1.80 higher than before, just from VAT. It is one reason many small sellers see margins shrink after registering. Our post on how to calculate dropshipping profit shows how VAT and other costs fit together in the full calculation. The VAT treatment of your own sales can be more complex, so a qualified accountant can advise on your situation.
Using break-even to plan discounts
Say your list price is £10.51 and you want to run a 20% off promotion. The sale price is £8.41.
- It is above the £6.71 break-even price, so you still make money
- Your profit falls from £3.00 to about £1.34 per order
- The deepest discount before you hit break-even is about 36%
A discount calculator makes it easy to see sale prices for different percentages, and you can then compare each one against your break-even price. If a promotion only makes sense at a loss, it needs a clear reason, such as clearing old stock.
A quick break-even checklist
Before you list any product:
- List every fixed cost per order, including packaging and fixed fees
- List every percentage cost, including ads and a returns allowance
- Calculate the break-even price with the formula
- Add your target profit or margin to find a list price
- Check the list price against what competitors charge
- Work out the deepest discount you can afford
- Recalculate when supplier prices, fees or your ad rate change
If you are unsure how much ad spend to build in, see how much to spend on ads per sale.
Let a calculator do it
Our free dropshipping profit calculator works out the break-even price for eBay, Amazon, TikTok Shop and Etsy automatically, using the same approach as this guide. It also suggests a price for your target margin and lets you switch VAT on or off. Fee rates are estimates, so check them against each platform's official fee page.
Frequently asked questions
Is break-even price the same as cost price?
No. Cost price is what you pay for the product. Break-even price also covers fees, ads, shipping and returns, so it is always higher for an online seller.
Why can't I just add my percentage fees to my cost?
Because percentage fees are taken from the selling price, not the cost. Adding 21% to £5.30 gives £6.41, which is too low. Dividing by 0.79 gives the correct £6.71.
Should my returns allowance be in break-even?
Yes. Returns are a real cost of selling online, so including them gives you an honest floor.
How often should I recalculate it?
Whenever a cost changes, and as a regular check on your best-selling products.
If you would like an easy way to model prices across four marketplaces at once, try the dropshipping profit calculator.
This guide is general information, not legal, tax or financial advice. Fees, rules and thresholds change, so check the official source before you act. Spotted something out of date? Tell us and we will review it.
