Many online businesses may choose to diversify and stock multiple products. If your business stocks numerous products, you can calculate your break-even point using weighted average contribution margins. In short, you would calculate the break-even point as:
Break-Even Point (BEP) = Fixed Costs ÷ Weighted Average Contribution Margin per unit (WACM)
You can compute the weighted average contribution margin by subtracting the weighted average variable expenses from the weighted average selling price. This would look like this:
Weighted Average Contribution Margin (WACM) = Weighted Average Selling Price- Weighted Average Variable Expenses
This is where:
Weighted Average Selling Price = (Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B) + (Sale price of product C × Sales percentage of product C)
Weighted Average Variable Expenses = (Variable expenses of product A × Sales percentage of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable expenses of product C × Sales percentage of product C)
Once you’ve calculated the BEP for multiple products, you can then use it to assess the current product line-up and profitability for the products you are selling. A good break-even analysis should be able to highlight unsustainable variable costs such as labour and materials and identify poor selling or low profitability products.
How to calculate your break-even point: A guide for ecommerce businesses
Our comprehensive guide covers everything you need to know about calculating your break-even point as an ecommerce business owner.
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