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Setting up an online store on Shopify is all play and game until one is shocked that there is more to turning it into a successful business than being a master in pricing and breakeven calculation. Most new store owners have issues with approximating the appropriate price for their products, thus ending up underpricing or overpricing, which devours their profits. Let's explore how to find your Shopify breakeven point and set prices to ensure profitability.
The Shopify Break-even point is that level of sales where your revenue equals your cost; in other words, you have made no profit or suffered any loss. As soon as you go past this point, every extra sale you make is a profit to you. It is on the strength of knowing your breakeven point that you will plan your realistic pricing and revenue objectives.
To calculate your breakeven point, apply the following easy formula:
Breakeven Point (Units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)
Fixed Costs: These are the costs that do not fluctuate, such as Shopify subscription charges, advertising, and rent, if any.
Variable Costs: These are costs that vary with every sale. They consist of product costs, delivery charges, transaction fees, etc.
Selling Price per Unit: What you charge for each unit of your product.
Example Calculation
Assume your costs are these:
Fixed cost: $500/month
Variable cost per product: $10
Selling price per product: $30
Breakeven Point= $500/ ($30- $10)= 25 units
This means you need to sell at least 25 units a month to cover all your expenses, and anything above is icing on the cake!
Once you establish your breakeven point, the other aspect that you must strategically address would be price setting for maximum profit. Here are some essential strategies: