Profit 20 min read Intermediate

Break-Even Analysis for New Products: Know Your Numbers Before You Launch

New product costs $3,000 upfront + $15 per unit. You sell for $50. How many units until you break even? Calculate the exact number in Excel so you know if launch is viable before spending a dime.

Platforms: Shopify WooCommerce Any E-commerce
Break-Even Analysis for New Products: Know Your Numbers Before You Launch

The $15K Product Launch That Never Broke Even

The enthusiastic launch: You found a great product idea on Alibaba:
  • Supplier MOQ: 500 units
  • Per-unit cost: $12
  • Tooling/setup fee: $2,000
  • You plan to sell for: $40
Your quick math:
  • Margin per unit: $40 - $12 = $28
  • Profit on 500 units: $28 × 500 = $14,000
  • Minus tooling: $14,000 - $2,000 = $12,000 profit
  • "This looks great!"
What you forgot:
  • Shipping from China: $1,500
  • Photos/content: $800
  • Sample units (3 rounds): $400
  • Packaging design: $500
  • First month ads: $3,000
  • Shopify fees (8%): $40 × 0.08 × 500 = $1,600
  • Payment processing (3%): $40 × 0.03 × 500 = $600
Actual fixed costs: $2,000 + $1,500 + $800 + $400 + $500 + $3,000 = $8,200 Variable costs per unit: $12 + $3.20 (fees) = $15.20 Contribution margin: $40 - $15.20 = $24.80 Break-even units: $8,200 / $24.80 = 331 units Reality:
  • You only sold 180 units in first 3 months
  • You're $3,750 in the hole
  • 320 units sitting in your garage
  • You need to sell another 151 units just to break even
If you'd done break-even analysis first, you would have known:
  • Need 331 units to break even
  • 500 MOQ leaves only 169 units margin for error
  • At realistic 5% conversion, you need 6,620 visitors
  • At $1 CPC, that's $6,620 in ads (already over budget)
This guide teaches you to calculate ALL costs upfront so launches are profitable, not surprises.

Break-Even Formula: The Two Types

Type 1: Simple Break-Even (Units)

Formula: 
Break-Even Units = Fixed Costs / Contribution Margin per Unit

Where:
Contribution Margin = Selling Price - Variable Cost per Unit
Example:
  • Fixed costs: $5,000
  • Selling price: $50
  • Variable cost: $20
  • Contribution margin: $50 - $20 = $30
  • Break-even: $5,000 / $30 = 167 units
You must sell 167 units to cover all costs.

Type 2: Break-Even Revenue (Dollars)

Formula: 
Break-Even Revenue = Fixed Costs / Contribution Margin Ratio

Where:
Contribution Margin Ratio = (Selling Price - Variable Cost) / Selling Price
Same example:
  • Contribution margin ratio: ($50 - $20) / $50 = 60%
  • Break-even revenue: $5,000 / 0.60 = $8,333
You need $8,333 in sales to break even (167 units × $50 = $8,333 ✓)

Excel Formulas:

Break-even units: 
=Fixed_Costs / (Selling_Price - Variable_Cost_Per_Unit)
Break-even revenue: 
=Fixed_Costs / ((Selling_Price - Variable_Cost_Per_Unit) / Selling_Price)

Build a Product Launch Break-Even Model

1

List ALL Fixed Costs

Fixed costs = one-time or pre-launch costs regardless of units sold. Include: tooling/molds, samples (all rounds), photography, design, packaging design, trademark/legal, first marketing budget, shipping (container from China). Don't underestimate!

List ALL Fixed Costs
2

Calculate Variable Cost per Unit

Variable = costs that scale with units. Per unit: COGS, packaging materials, shipping to customer, payment processing (% of price), platform fees (% of price). Formula: =COGS + Packaging + Avg_Shipping + (Price × Fee_%)

Calculate Variable Cost per Unit
3

Set Selling Price

Research competitor prices. Calculate minimum viable price: 3× COGS rule (if COGS $15, sell $45+). Ensure margin covers variable costs + platform fees + profit.

Set Selling Price
4

Calculate Contribution Margin

Formula: =Selling_Price - Variable_Cost_Per_Unit. This is profit per unit AFTER variable costs, BEFORE fixed costs recovered. Positive contribution margin required or you lose money on every sale.

Calculate Contribution Margin
5

Calculate Break-Even Units

Formula: =SUM(Fixed_Costs) / Contribution_Margin. Result: number of units you must sell to recover all fixed costs. Compare to MOQ: if break-even > MOQ, dangerous.

Calculate Break-Even Units
6

Build Sensitivity Analysis Table

Data Table showing break-even at different price points and cost scenarios. Rows: Price ($40, $45, $50). Columns: COGS ($12, $15, $18). Shows how sensitive launch is to pricing/cost changes.

Build Sensitivity Analysis Table
7

Add Marketing Viability Check

Calculate visitors needed: =Break_Even_Units / Conversion_Rate. Then ad spend: =Visitors × CPC. If required ad spend > your budget, launch isn't viable. Reality check before investing.

Add Marketing Viability Check
8

Create Profit Projection Chart

X-axis: Units sold (0 to MOQ). Y-axis: Profit/Loss. Plot line: =(Units × Contribution_Margin) - Fixed_Costs. Shows break-even point visually, profit potential at different volumes.

Create Profit Projection Chart

The Complete Cost Checklist: What People Forget

Fixed Costs (One-Time Launch Costs)

Product Development:
  • [ ] Samples (3-5 rounds typical): $300-$1,000
  • [ ] Tooling/molds/setup fees: $1,000-$10,000+
  • [ ] Product design/engineering: $500-$5,000
  • [ ] Packaging design: $300-$1,500
  • [ ] Compliance testing (if required): $500-$5,000
  • [ ] Trademark/legal (if applicable): $500-$2,000
Freight & Logistics:
  • [ ] Shipping from supplier (container/air): $500-$5,000
  • [ ] Customs/duties/brokerage: 5-10% of product value
  • [ ] Freight forwarding fees: $200-$500
  • [ ] Warehousing first month (if not at home): $100-$500
Marketing Launch:
  • [ ] Photography (product + lifestyle): $500-$2,000
  • [ ] Video content: $500-$3,000
  • [ ] Product page copywriting: $200-$800
  • [ ] Initial ad budget (first month): $1,000-$5,000+
  • [ ] Influencer samples/seeding: $300-$1,000
  • [ ] Email list building tools: $50-$200
Platform Setup:
  • [ ] Shopify/WooCommerce setup (if new store): $300-$1,000
  • [ ] Apps/subscriptions (first month): $100-$300

Variable Costs (Per Unit Sold)

Product:
  • [ ] COGS (cost from supplier)
  • [ ] Packaging materials per unit
  • [ ] Inserts/branded packaging
  • [ ] Product labeling/stickers
Fulfillment:
  • [ ] Pick/pack labor (if self-fulfilling): $2-$5/unit
  • [ ] Shipping to customer: $5-$15/unit (varies by size/weight)
  • [ ] Shipping materials (box, tape, etc): $0.50-$2/unit
Platform Fees:
  • [ ] Shopify: 2-3% payment processing
  • [ ] Amazon: 15% referral fee + fulfillment
  • [ ] eBay: 10-15% final value fee
  • [ ] Payment processor (Stripe/PayPal): 2.9% + $0.30
Returns/Damaged (Allowance):
  • [ ] 3-5% return rate × (product cost + shipping both ways)

The Forgotten Costs:

Most people forget: 1. Return shipping (you pay both ways typically) 2. Customs/duties (5-10% of product value) 3. Multiple sample rounds ($300-$800 total) 4. Photos AND video (not just photos) 5. First month marketing (can't launch without ads)
Cost Type When Paid Typical Range Often Forgotten? Impact If Missed
COGS Per unit $5-$50 No Moderate
Tooling Upfront $1K-$10K Sometimes Critical
Shipping container Upfront $1K-$5K Yes High
Samples (all rounds) Upfront $300-$1K Yes Moderate
Photography Upfront $500-$2K No High
Launch ads Month 1 $1K-$5K Yes Critical
Platform fees Per sale 5-15% Sometimes High
Return allowance Ongoing 3-5% Yes Moderate

Sensitivity Analysis: Test Your Assumptions

Why Sensitivity Analysis Matters:

You estimated:
  • COGS: $15
  • Selling price: $50
  • Conversion rate: 3%
But what if:
  • COGS is actually $18 (supplier raised price)
  • You can only sell for $45 (competitors undercut)
  • Conversion is 2% (harder to sell than expected)
Sensitivity analysis tests "what if" scenarios.

Build a Data Table in Excel:

Scenario 1: Price vs Break-Even
Selling Price Break-Even Units Break-Even Revenue
$40 250 units $10,000
$45 208 units $9,360
$50 178 units $8,900
$55 156 units $8,580
$60 139 units $8,340
Insight: Every $5 price drop requires 40+ more unit sales to break even. Scenario 2: COGS vs Break-Even
COGS Contribution Margin Break-Even Units
$12 $38 132 units
$15 $35 143 units
$18 $32 156 units
$21 $29 172 units
$24 $26 192 units
Insight: Every $3 COGS increase requires 13+ more sales to break even. Scenario 3: Fixed Costs vs Break-Even
Fixed Costs Break-Even Units % of 500 MOQ
$3,000 86 units 17%
$5,000 143 units 29%
$7,000 200 units 40%
$10,000 286 units 57%
$15,000 429 units 86%
Insight: At $15K fixed costs, you must sell 86% of MOQ just to break even. No room for error.

Excel Data Table Setup:

1. Create base break-even formula: `=Fixed_Costs / (Price - COGS)` 2. Select range for table 3. Data → What-If Analysis → Data Table 4. Row input cell: Price 5. Column input cell: COGS 6. Excel fills table with break-even at each combination

From Break-Even to Profit Target

Break-Even Isn't the Goal

Breaking even means: recovered costs, made $0 profit. You need profit for:
  • Your time (opportunity cost)
  • Next product development
  • Marketing to sustain sales
  • Business growth

Profit Target Formula:

Units Needed = (Fixed Costs + Desired Profit) / Contribution Margin
Example:
  • Fixed costs: $5,000
  • Desired profit: $10,000
  • Contribution margin: $30/unit
  • Units needed: ($5,000 + $10,000) / $30 = 500 units
To make $10K profit, you need 500 sales (not 167 break-even).

ROI Calculation:

ROI = (Net Profit / Total Investment) × 100
Example:
  • Total investment: $5,000 fixed + ($20 variable × 500 units) = $15,000
  • Revenue: $50 × 500 = $25,000
  • Net profit: $25,000 - $15,000 = $10,000
  • ROI: ($10,000 / $15,000) × 100 = 67%

Payback Period:

Payback Period (months) = Total Investment / (Monthly Revenue - Monthly Variable Costs)
Example:
  • Total investment: $15,000
  • Sell 50 units/month at $50 = $2,500 revenue
  • Variable costs: 50 × $20 = $1,000
  • Monthly contribution: $2,500 - $1,000 = $1,500
  • Payback: $15,000 / $1,500 = 10 months
You recover investment in 10 months at this rate.

The Viability Checklist: Should You Launch?

Green Lights (Launch Looks Good):

  • [ ] Break-even < 40% of MOQ (room for error)
  • [ ] Contribution margin > 50% (healthy margins)
  • [ ] Payback period < 6 months (fast recovery)
  • [ ] ROI > 50% in first year (worth the effort)
  • [ ] Marketing spend to break-even < 30% of fixed costs
  • [ ] Supplier has <30 day lead time (inventory flexibility)
  • [ ] Tested pricing with surveys/feedback (validated)

Yellow Lights (Proceed with Caution):

  • [ ] Break-even = 40-70% of MOQ (tight margin for error)
  • [ ] Contribution margin = 30-50% (acceptable but lean)
  • [ ] Payback period = 6-12 months (slow but viable)
  • [ ] ROI = 25-50% (modest returns)
  • [ ] Marketing spend = 30-50% of fixed costs
  • [ ] Supplier lead time = 30-60 days

Red Lights (Don't Launch):

  • [ ] Break-even > 70% of MOQ (almost no profit potential)
  • [ ] Contribution margin < 30% (can't support business)
  • [ ] Payback period > 12 months (too slow)
  • [ ] ROI < 25% (better opportunities exist)
  • [ ] Marketing spend > 50% of fixed costs (unprofitable CAC)
  • [ ] Negative contribution margin (lose $ on every sale)

Decision Matrix:

Example A:
  • MOQ: 500 units
  • Break-even: 150 units (30% of MOQ) ✓
  • Contribution margin: 55% ✓
  • ROI: 80% ✓
  • Decision: GREEN - Launch
Example B:
  • MOQ: 500 units
  • Break-even: 420 units (84% of MOQ) ✗
  • Contribution margin: 25% ⚠
  • ROI: 15% ✗
  • Decision: RED - Don't launch

The 70% Rule

If your break-even point is more than 70% of your minimum order quantity, DON'T LAUNCH. You have almost no margin for error. One small miscalculation and you're stuck with dead inventory.

Real Examples: Break-Even Success & Failure

Success Story: Yoga Mat

The numbers:
  • MOQ: 300 units
  • COGS: $8/unit
  • Selling price: $35
  • Contribution margin: $35 - ($8 + $5 fees + $3 shipping) = $19
Fixed costs:
  • Samples: $200
  • Photography: $800
  • Initial ads: $2,000
  • Shipping container: $600
  • Total: $3,600
Break-even: $3,600 / $19 = 190 units Why it worked:
  • Break-even 63% of MOQ (110 units buffer)
  • Healthy 54% contribution margin
  • Tested pricing with surveys first
  • Sold 280 units in first 3 months
  • Profit: (280 × $19) - $3,600 = $1,720

Failure Story: Bluetooth Speaker

The numbers:
  • MOQ: 500 units
  • COGS: $22/unit
  • Selling price: $60
  • Contribution margin: $60 - ($22 + $8 fees + $6 shipping) = $24
Fixed costs:
  • Tooling: $5,000
  • Samples (4 rounds): $800
  • FCC compliance testing: $2,500
  • Photography: $1,200
  • Initial ads: $4,000
  • Shipping: $2,000
  • Total: $15,500
Break-even: $15,500 / $24 = 646 units Why it failed:
  • Break-even 129% of MOQ (need reorder to break even!)
  • Fixed costs too high (compliance testing killed it)
  • Underestimated ad costs (competitive market)
  • Sold 320 units in 6 months, then stopped
  • Loss: (320 × $24) - $15,500 = -$7,820
Lessons:
  • Should have negotiated higher MOQ or lower tooling
  • Compliance testing should have been researched first
  • Competitive market needed more ad spend (wasn't viable)

Common Mistakes to Avoid

Mistake: Forgetting variable platform fees (% of sale price) in variable cost calculation
Solution: Variable cost per unit = COGS + Packaging + Shipping + (Price × Fee%). Shopify 3%, Amazon 15%, etc. Fees are variable, not fixed.
Mistake: Using only first sample cost, not all 3-5 rounds you actually order
Solution: First sample: issues. Second: tweaks. Third: final approval. Realistically $300-$1,000 in samples total. Budget for 3+ rounds.
Mistake: Comparing break-even to first order size, not MOQ required to reorder
Solution: MOQ might be 500 first order, but 200 reorders. If break-even is 180, you're fine on reorders but first order is risky. Account for both.
Mistake: Setting profit target too low (just covering costs isn't enough)
Solution: Break-even isn't the goal. Add desired profit to fixed costs. Calculate units needed for meaningful profit (usually 2-3× break-even).

Verification Checklist

  • Your contribution margin is positive (if negative, you lose money on every sale - don't launch)
  • Fixed costs + (Variable cost × MOQ) = Total investment (validates you've captured all costs)
  • Break-even units × Selling price = Break-even revenue (two formulas match)
  • At MOQ units, your projected profit = (MOQ × Contribution margin) - Fixed costs

Frequently Asked Questions

Use industry benchmarks: 1-2% for cold traffic, 3-5% for warm traffic, 10%+ for hot/retargeting. Conservative is safer. Test with small ad spend before full launch.
Not in break-even (that's cash break-even). Calculate separately: hours × your desired rate. If you need $3K for your time + $5K cash = $8K total required profit.
Options: (1) Negotiate lower MOQ, (2) Find different supplier, (3) Don't launch yet. Borrowing to fund launch with no profit buffer is very risky.
Add return allowance to variable costs: Assume 3-5% return rate. Per unit add: (Return_rate × (COGS + Shipping_both_ways + CS_time)). Makes variable cost higher, break-even more conservative.
50%+ in first year is good. 25-50% is acceptable. &lt;25% probably not worth the risk and effort. Compare to alternative investments (stock market ~10%, your opportunity cost).