Break-even, and how to price backwards

There are two ways to arrive at a price. You can look at what competitors charge, pick something similar, and find out later what it leaves you. Or you can decide what you need to make, and solve for the price that produces it.

The first is how most listings get priced. The second is how profitable ones do.

Break-even is not your product cost

Ask a seller their break-even on a ₹200 t-shirt and you'll often hear "₹200". That would be true if selling were free. Here is what actually has to be covered before you break even, on Amazon, national, self-shipped, 300g:

But that's the cost in taxable terms, and your customer pays a GST-inclusive price. To recover ₹306 of taxable value at 18% GST you must charge:

₹361, not ₹200. A seller who "knows" their break-even is ₹200 and prices at ₹349 to undercut a competitor is losing about ₹10 an order while believing they are making ₹126.

Pricing backwards from a target margin

Break-even tells you the floor. It doesn't tell you the price. For that, decide the margin you need and solve for it.

Applied to the same t-shirt, with 0% commission below ₹1,000:

Now the ₹499 in our worked examples stops being arbitrary — it earns a 23.4% margin, sitting deliberately just under the ₹500 closing-fee boundary. A competitor charging ₹449 is running at 16.6%. That is a business decision you can now actually evaluate.

Returns move the floor, and most people forget

Everything above assumes every order sticks. It doesn't. At a 10% return rate you lose forward shipping, reverse shipping and packaging on one order in ten — about ₹150 each time on Amazon.

That has to come out of the other nine orders.

A 30% return rate — high but real in apparel — moves your break-even up by ₹76. If you priced from a no-returns break-even, you are running thinner than you think on every order. See our returns guide for why the cost is what it is.

Advertising: the cost that hides inside your price

Ad spend is a per-order cost like any other, but it doesn't appear on your fee settlement, so it tends to get treated as a separate marketing budget rather than a cost of goods sold.

On our ₹499 t-shirt earning ₹116.88 before ads:

This is the number to compute before you open the campaign manager. Revenue growth bought above your break-even ACoS is growth you are paying for out of capital.

Monthly fixed costs need a volume, not a price

Storage, staff, software and rent don't attach to an order. They need covering by the total contribution of all your orders:

Anything above 278 is profit. Anything below is subsidised from savings. This is the number that tells you whether a product line is viable at the volume you can actually achieve, and it is much more useful than margin percentage on its own.

Never price just above ₹1,000

One structural warning that overrides all of the above. Referral fees are zero at or below ₹1,000 and jump immediately above it:

There is a dead zone from ₹1,001 to about ₹1,424 where you earn less than you would at ₹1,000. You have to charge 42% more just to get back to where you started. If your pricing lands in that band, either come down to ₹999 or commit to going well above it. The worst place to be is ₹1,049.

A pricing checklist

1. Add up your true per-order costs: product, packaging, shipping, closing fee.
2. Multiply by (1 + GST rate). That is your break-even price.
3. Add your return cost per order sold: return cost × return rate.
4. Add your ad cost per order: monthly spend ÷ monthly orders.
5. Solve for your target margin using the formula above.
6. Check you haven't landed in the ₹1,001–₹1,340 dead zone.
7. Divide monthly fixed costs by profit per order to get your break-even volume.
8. Ask honestly whether you can hit that volume at that price.

Step eight is the one that saves money. A product needing 900 orders a month in a category where you sell 300 is not a pricing problem — it is a product you shouldn't stock, and it is far cheaper to learn that on a spreadsheet than in a warehouse.