In plain words
The break-even price is the price at which an order's contribution margin is exactly zero. It is the floor under every discount: sell below it, and each order costs more to make and ship than it brings in.
It is higher than the product's cost, often much higher. The floor has to cover fulfilment, the label and the fixed card fee, and then be raised again, because some costs are a share of the price itself and take their cut of every dollar.
Formula
- Break-even price = costs that do not depend on price ÷ (1 − costs charged as a share of price)
Worked example
The coffee bag costs $12.00 to buy. The engine's solver puts its break-even price at $23.33, almost twice that: at this price the order keeps $0.00.
One dollar lower, the engine puts the order at −$0.92. A 40% discount on the $40.00 bag would sell it for $24.00, barely above the floor.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
The break-even price is not the unit cost
Selling at cost loses the whole of fulfilment, shipping and fees on every order. The unit cost is the floor for gross margin only. For an order that ships, the floor is the price at which contribution margin reaches zero.
Using it
Work it out per option, with the shipping the customer pays included as revenue. Then check every promotion against it, including the stacked case where a sale price meets a subscription discount or a code. An offer can sit above the floor on its own and fall through it once two discounts combine.
In Offer Suite
Offer Suite's simulator solves for a subscription's first-order price the same way: it moves one input, holds the rest and checks the answer against the projection it came from. When no price reaches the goal it says why, and gives no nearest guess.
Source: Offer Suite's margin engine.