Break-even analysis: how much do you need to sell?

By Richie Lennon

A 10% discount can mean needing 40% more orders just to cover your costs.

In the worked example below, an online retailer breaks even at 600 orders a month. Cut the price by 10% and the threshold rises to 840 orders, with the same assumed costs. The business needs another 240 orders to reach operating break-even at the discounted price.

Before launching the offer, ask where those orders will come from and what it will cost to deliver them.

At a glance

Break-even analysis calculates the sales needed to cover fixed and variable costs. Divide fixed costs by the contribution each sale leaves, or by the contribution margin ratio for a revenue target. Use it to test a discount, a hire or another commitment. Then check whether the required sales are achievable and whether you can fund them. The calculation sets a threshold; it does not create demand.

Stock photograph: Pavel Danilyuk / Pexels.

The break-even formula

Start with the amount each sale leaves after variable costs:

Contribution per sale = selling price minus variable cost per sale.

Then calculate:

Break-even volume = fixed costs ÷ contribution per sale.

For a revenue target, use fixed costs ÷ contribution margin ratio, with the ratio expressed as a decimal. A 35% ratio means dividing by 0.35, not 35.

Keep costs and sales on the same monthly or annual basis. These standard calculations assume costs behave consistently within the volume you can handle.

If contribution is zero or negative, extra sales cannot cover positive fixed costs under that model. Fix the price or cost assumptions before treating volume as the answer.

Get the costs right before using a calculator

A precise answer built on the wrong costs is still wrong. Start by checking what each sale actually leaves, using current supplier, fulfilment and payment records. Then ask what changes when you make one more sale within the capacity you already have.

Product costs, per-order fulfilment and sales commissions may increase with volume. Rent, a software subscription and an existing salary may stay unchanged over the month. Mixed costs need splitting into their fixed and variable parts.

An accounting label is not enough. A salaried delivery employee might sit within cost of sales in your accounts while their monthly pay remains fixed for this calculation. Count that cost once. Do not deduct it per job and include the full salary again in overheads.

Advertising needs the same care. A budget you intend to hold at €8,000 is fixed for that scenario. A plan to spend a set amount for every additional order needs a variable allowance instead. If scaling sales requires a larger budget, model that explicitly.

For ecommerce, check landed product costs, payment fees, fulfilment, discounts and returns against actual records. If sales are already net of refunds, include only additional returns costs that have not already been deducted. Our contribution margin guide explains the margin inputs in more detail.

For Irish VAT purposes, keep the basis consistent. The example uses sales excluding VAT and costs excluding recoverable VAT. Include irrecoverable VAT in costs. VAT registration does not make every purchase eligible for recovery: Revenue explains the restrictions.

A worked monthly example in euros

This fictional retailer sells one identical product per order. The model assumes consistent unit costs and enough existing capacity for the volumes shown. It is a whole-business monthly comparison in which every order takes the stated price. A limited promotion affecting only some orders needs a separate model of discounted and full-price sales.

The €10 allowance covers fees and additional expected returns costs; refunds are not deducted twice. Any input VAT in the listed costs is assumed recoverable. Advertising stays fixed at €8,000 for this scenario.

Each order contributes €100 minus €65 = €35.

Monthly break-even is €21,000 ÷ €35 = 600 orders. At €100 each, that means €60,000 revenue.

Check it against the model:

• Revenue: €60,000.
• Variable costs: 600 × €65 = €39,000.
• Contribution: €21,000.
• Fixed costs: €21,000.
• Operating profit: €0.

This is operating break-even before interest and tax, with depreciation included in the assumed fixed costs. It is not the owner’s take-home income or a bank balance forecast.

What a discount, cost increase or hire changes

Now change one input at a time.

With the discount, the price falls to €90 but variable costs remain €65. Contribution drops from €35 to €25.

The required volume rises from 600 to 840 orders: 840 ÷ 600 minus 1 = 40%. At only 600 discounted orders, the model produces a €6,000 operating loss.

This assumes no reduction in variable costs. Percentage-based payment fees may fall with the selling price; higher volume may also change fulfilment or advertising costs. Recalculate using those changes rather than assuming this example applies unchanged to your shop.

The €4,000 commitment raises the theoretical revenue threshold to €71,428.57. Because orders are indivisible, round up to 715 whole orders, or €71,500 revenue. That covers the assumed costs with €25 operating profit; it adds almost no cushion.

If the new commitment is a hire, use the full employer cost, not just the advertised salary. Check whether you can sell and deliver the additional work, and how long the new person needs to become productive.

For an agency, first check whether existing paid capacity is being billed and whether overservicing is consuming it. Hiring another person can raise the cost base while leaving the billing problem untouched. Find out where the current team’s time goes before assuming another salary will produce more invoiced work.

Can you actually sell the extra 240 orders?

The discount scenario holds advertising at €8,000 and assumes the team can fulfil 840 orders. Both assumptions need evidence.

Look at previous promotions: how many additional orders did they generate, after allowing for sales that would have happened anyway? Check the price customers actually paid, the product mix and the contribution left after refunds and fulfilment. More orders alone is a weak success measure.

If the discount needs another €3,000 of advertising, fixed costs rise to €24,000. At €25 contribution per order, break-even becomes 960 orders, not 840. That is 60% more than the original 600-order threshold. This alternative treats the additional advertising as a fixed campaign budget; do not also deduct it per order.

Check stock and delivery capacity too. If the additional orders require overtime, higher shipping charges or extra storage, put those costs into the model once. A promotion that clears the original spreadsheet threshold may still lose money once those commitments are included.

The same discipline applies to hiring. There should be a credible route from the new cost to work you can sell, deliver and collect payment for. A sales target written to justify the decision is not that evidence.

When you sell several products or services

Do not take a simple average of different contribution percentages unless their revenue shares are equal.

Suppose 60% of expected revenue comes from products with a 40% contribution margin and 40% comes from products with a 20% margin. The revenue-weighted ratio is:

60% × 40% + 40% × 20% = 32%.

With €21,000 common fixed costs, break-even revenue is €21,000 ÷ 0.32 = €65,625.

If the lower-margin products grow to 60% of revenue, the ratio falls to 28% and the threshold rises to €75,000, even though fixed costs have not changed.

That is why the expected sales mix matters. Include common fixed costs once in the business model. If you also assess individual product lines, distinguish their own avoidable costs from an allocation of shared overhead.

Translate the revenue threshold into an order or billable-work plan using the assumed mix.

Set a profit target and check your headroom

Break-even is a floor. It leaves no operating profit in this model.

For the original retailer to earn €7,000 monthly operating profit, it needs:

(€21,000 fixed costs + €7,000 target profit) ÷ €35 = 800 orders.

At €100 per order, that is €80,000 revenue.

At that sales level, the gap above the €60,000 break-even threshold is €20,000. Divide that gap by €80,000 and the margin of safety is 25%.

Sales could fall by 25% to reach operating break-even, provided price, costs, capacity and mix stay unchanged. That qualification matters. A weaker mix or a larger advertising budget can reduce the headroom before revenue falls.

Keep the cash forecast separate

A business can reach operating break-even and still need cash.

Stock may be paid for before it sells. Customers may pay after an invoice is recognised as revenue. Loan principal repayments and equipment purchases use cash without matching the expenses in this simple operating model. Depreciation has the opposite effect: an expense without a current cash payment.

Build a cash forecast alongside the sales target, including VAT payment timing where relevant. Our business forecasting guide explains how to connect the assumptions to a broader plan.

Five checks before committing

Write the answers down before approving the promotion, hire or spending increase:

1. What changes? Record the current price, contribution and fixed costs, then the proposed change on the same basis.
2. What must you sell? Calculate the new threshold and a profit target. Translate revenue into orders, jobs or billable work the team can recognise.
3. Why will those sales happen? Use actual promotion results, contracted work or a supported pipeline. Separate evidence from ambition.
4. Can you deliver and fund them? Check capacity, stock, payment timing and the extra costs required to reach the volume.
5. When will you review the result? Assign an owner and review date. Compare actual contribution, acquisition costs and cash with the model; decide in advance what result would make you change course.

For the retailer, “840 orders” is only the starting point. The owner needs a plan that explains where the extra 240 come from, why the €8,000 budget is sufficient and how the orders will be fulfilled. If that plan does not hold up, revisit the offer before committing.

Make the threshold part of your monthly decisions

When the inputs are scattered across sales platforms, payroll and supplier invoices, a calculator is unlikely to resolve the uncertainty on its own.

Management accounts can give you a regular view of performance and a basis for discussing the next decision. The reporting and analysis you need should be agreed around your business.

If you run an Irish business with annual revenue of €250,000 or more and want ongoing finance support, book a Finance Fit Call to discuss whether Around Finance is a suitable fit.

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