What is breakeven? What is the percentage profit? And what are the differences between these two metrics?
It is a general question which we get from many different people, from all the levels. From beginners and to very experienced sellers who don’t know what the differences are and how to calculate them right.
In this article, we want to show you all the process and what are the differences between these two parameters and how to use them right.
First of all, what is break-even? it is the percentage amount of money which we need to make in order to not lose money, in other words, it is the amount of money we need to generate to cover our expenses.
If we make only breakeven without any profit, it means that we don’t lose money. But this way we will make any profit.
On the other side, the percentage profit is the percentage amount which we want to take to our pockets. It is the money which we take back home from our business. So let’s see what the differences between these two metrics are.
First of all, break-even is calculated from the final price, from the eBay price not from the price which we pay to our suppliers, why?
Because we pay our taxes from our income, we pay eBay the subscription fee from our income, and we also pay to PayPal a percentage of the money which we get. It means that we pay to PayPal from what we get on eBay.
The percentage profit is calculated from the amount which we pay to our supplier, for example, if I buy something from Amazon for 10 dollars and I have 10% of profit I will make one dollar. So how to calculate the break-even right?
We need to calculate all the percentages of the things which we pay, on eBay US it is 9.15% if you have a store subscription, for PayPal, it depends on the account because if you are an international seller you need to check your PayPal’s fees and mostly you will need to add another 1% for the international transactions, basically it depends on your country so you need to check individually the specific country table.
If you are from the US and you sell only to US customers, you don’t have any international fees. You only need to calculate the regular fee of PayPal. Don’t forget that you need to take into consideration the tax estimation that you have to pay while buying from your supplier (if applicable).
For example, If you work with Aliexpress, you don’t have any taxes so you don’t need to add anything to your break-even percentage, but you need to add other percentages; for instance, if you pay for gift cards you will need to add the processing fee percentage.
If I pay another 3% to purchase the gift cards, it is not from the money that I get on eBay but it is from what I pay which means that this 3% needs to be deducted from the percentage profit and not from the breakeven percentage.
Now let’s see how the calculation works. Let’s say that we have a product whose price is 22.29$ and the breakeven is 19%, the profit is 10%. Our final price will be 30.27$ (22.29+[22.29*10/100]) / (1 – 19 / 100).
But if we switch between the breakeven and the profit by putting 10% in break even and 19% in the profit. Our final price will be 29.47$ (22.29+[22.29*19/100]) / (1 – 10 / 100).
The price is completely different why it happens? it happens because the calculation of the break-even is from the final price which we get from eBay, while the calculation of the profit is from the price which we pay to the supplier. actually, it’s from the buying price. This is the main difference between these two parameters.
Final Price Formula
For those of you who are interested, this is the formula:
Final Price = (Source price + [source price * %profit / 100]) / (1 – Breakeven / 100)
As you can see, the breakeven is not deducted from the source price, but the % profit is. We tried to make it easier for you so you can easily distinguish between the break-even and the percentage profit.
We hope that we made things much more clear for you because a lot of people are asking how to calculate or which percent of break-even should I put. After this article, you will understand what your breakeven should be and why.
I hope that you liked this article, don’t forget to leave a comment with any question about dropshipping or eBay. See you in the upcoming articles.