Calculating Break Even or Minimum Pricing on Retail Products

Let me start by saying, this is not a formula I would recommend using to calculate your regular price for a product, but it can be helpful for deciding a launch price, or aggressive sales pricing. Also useful for calculating minimum prices if you are using a repricer.

It’s very easy:

(Your fixed product cost + weight handling fees) / .85(the Amazon referral fee, which you might need to adjust depending on your category)

For example your widget cost you $1 to purchase, and your FBA fee is $2.41(using the new fees coming in Feb). Your break even list price would be ($1+$2.41)/.85 = 4.01. You should typically round up a little here to avoid rounding errors on the reverse calculation, and use $4.02.

I use my landed product cost, but you can get as granular as you like here. This will give you a general break even listing price after Amazon fees.

Because this is a product level calculation, it ignores a variety of macro-level costs. This obviously does not account for inbound FBA shipping, Pro Seller account fee, taxes, labor or any other expenses you might have, which is why I don’t suggest using this for a regular pricing strategy, but only for reference.

Another formula you could use is what would be known as “cost plus pricing” in some retail circles.

(Product cost + FBA fee + $min profit you want)/.85

I use dollars for profit, because I prefer actual dollars over percentages, but you can alter it to use a profit percent instead.

Example: You’ve decided that you absolutely need to make at least $1 profit per sale.

Using the same figures as before

($1 + $2.41 + $1)/.85 = $5.19 list price.

If you have a detailed grasp of your actual expenses, add any other expenses you want to include inside the parenthesis.

Your break even price is a crucial figure to calculate when deciding on a Pay-Per-Click(PPC) advertising budget for your product.

A spreadsheet with all of your products, their costs, and your pricing information is a very helpful reference. If you are selling on Amazon, entering your minimum price for your products, will allow you to quickly reprice a product while avoiding a price which results in a loss.

Alternatively, some services such as InventoryLab allow you to enter your costs and will calculate figures such as cost of goods sold(COGS) which is also an important number to know, especially at tax time!