Assume ecommerce business ‘Scrubs & Lotions’ has a projected annual income of £4,000 for its sale of face scrubs. This is based on a forecasted sales volume of 2,000 units at £2 per unit.
The company’s fixed expenses (such as rental of the business premises) have been estimated to be £9,000.
The company sells face scrubs via its website online, which is considered its total revenue. Similarly, its total variable costs are estimated to be £1,000 or £0.50 of variable costs per unit. In this scenario, you can calculate Scrubs & Lotions’ break-even point in units as:
Break-even point (BEP) =£9,000 /(£2-£0.50) = 6,000 units.
Scrubs & Lotions would need to sell 6,000 units of their face scrubs to break even. In other words, this is the point where their revenue and costs will be equivalent. An annual sales volume lower than 6,000 units at £2 per unit means that Scrubs & Lotions will be operating at a loss.
Similarly, you can use the above example to calculate the break-even point in sales value.
Break-even point (BEP) in sales value = £9,000/ (£2-£0.50/£2) = £12,000 in sales.
Scrubs & Lotions would need to achieve an annual sales target of £12,000 to break even at its proposed selling price of £2 per unit to cover its total costs. Any additional sales would be considered profit for the company.
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.
- What is a break-even point?
- Advantages of calculating a break-even point
- How to calculate your break-even point
- How to calculate a break-even point with multiple products
- Break-even point examples
- How to calculate a break-even point in Excel
- What are the limitations of a break-even analysis
- How to reduce your break-even point
- How often should you calculate your break-even point?