Break-even analysis
Working out how many more or fewer orders a price, discount or shipping change needs to keep gross profit where it is, before you test it.
Also called break-even sales change
Every change to what shoppers pay moves the profit on each order. Break-even analysis asks how many more (or how many fewer) orders keep total profit the same, from the contribution margin before and after the change.
It doesn't predict what shoppers will do. It tells you what a test has to show for the change to pay, which makes the result easy to judge.
At a 50% margin, a 20% discount needs two-thirds more units to break even, while a 10% price increase can lose a sixth of its units and still earn as much.
Related terms
- Contribution marginWhat a sale leaves after the costs that come with it, such as product cost, shipping and payment fees, before fixed costs like rent and salaries.
- Profit per visitorGross profit from orders divided by visitors: revenue minus product costs and other variable costs, per visitor in a variant.
- Offer testA test that gives different groups of shoppers different offers, such as 10% off versus $10 off, and compares what each earns after the discount.