Shut Down & Break-Even Price Calculator
This tool helps you determine two critical price points for your business based on your costs and production volume.
Enter your total costs and the total number of units produced for a specific period (e.g., one month) to find the minimum prices required to stay in business and to make a profit.
Enter Your Costs & Production Volume
Understanding Your Key Price Points
What are Fixed vs. Variable Costs?
- Variable Costs: Costs that change directly with your production volume. If you produce more, these costs go up (e.g., raw materials, packaging, direct labor).
- Fixed Costs: Costs that remain the same no matter how many units you produce (e.g., rent, insurance, monthly software fees, salaries).
Shut Down Price (Average Variable Cost)
This is the absolute minimum price you must sell your product for in the short term. It only covers the direct cost of making one more unit.
Shut Down Price = Total Variable Costs / Number of Units
If your market price falls below this, you are losing money on every single sale, and it's better to temporarily stop production.
Break-Even Price (Average Total Cost)
This is the price at which you are neither making a profit nor a loss. It covers all of your costs (both variable and fixed).
Break-Even Price = (Variable Costs + Fixed Costs) / Number of Units
To be profitable, your selling price must be higher than your break-even price.
Real-Life Examples
Click on an example to see how the calculations work in different scenarios.
Example 1: Coffee Shop
Scenario: A coffee shop wants to find its per-cup price points for the month.
1. Inputs: Variable Costs = $1,500 (coffee, milk, cups), Fixed Costs = $4,000 (rent, salaries), Units = 2,500 coffees sold.
2. Shut Down Price: $1,500 / 2,500 = $0.60 per coffee.
3. Break-Even Price: ($1,500 + $4,000) / 2,500 = $5,500 / 2,500 = $2.20 per coffee.
Conclusion: The shop must charge over $0.60 to contribute to rent. To make any profit, the average sale price must be above $2.20.
Example 2: Etsy Jewelry Maker
Scenario: A home-based jewelry maker analyzes the cost of a batch of necklaces.
1. Inputs: Variable Costs = $200 (beads, wire), Fixed Costs = $50 (Etsy fees, marketing), Units = 40 necklaces.
2. Shut Down Price: $200 / 40 = $5.00 per necklace.
3. Break-Even Price: ($200 + $50) / 40 = $250 / 40 = $6.25 per necklace.
Conclusion: Each necklace costs $5 in materials. To cover all costs, she must sell them for more than $6.25.
Example 3: Freelance Web Developer
Scenario: A developer calculates their break-even hourly rate for a month.
1. Inputs: Variable Costs = $100 (project-specific plugins), Fixed Costs = $400 (Adobe subscription, internet), Units = 80 billable hours.
2. Shut Down Price: $100 / 80 = $1.25 per hour.
3. Break-Even Price: ($100 + $400) / 80 = $500 / 80 = $6.25 per hour.
Conclusion: The developer's base hourly rate must be higher than $6.25 to be profitable after covering all business expenses.
Example 4: T-Shirt Printing Business
Scenario: A small printing shop analyzes a production run.
1. Inputs: Variable Costs = $700 (blank shirts, ink), Fixed Costs = $1,200 (machine lease, rent), Units = 200 shirts.
2. Shut Down Price: $700 / 200 = $3.50 per shirt.
3. Break-Even Price: ($700 + $1,200) / 200 = $1,900 / 200 = $9.50 per shirt.
Conclusion: Selling below $3.50 is an immediate loss. Profit is only made on shirts sold for more than $9.50.
Example 5: Software (SaaS) Company
Scenario: A small SaaS company reviews its monthly costs per subscriber.
1. Inputs: Variable Costs = $500 (server costs that scale with users), Fixed Costs = $10,000 (developer salaries), Units = 500 subscribers.
2. Shut Down Price: $500 / 500 = $1.00 per subscriber.
3. Break-Even Price: ($500 + $10,000) / 500 = $10,500 / 500 = $21.00 per subscriber.
Conclusion: The monthly subscription must be over $21.00 to become profitable.
Example 6: Home Bakery (Side Hustle)
Scenario: A hobbyist baker with no dedicated overhead calculates costs.
1. Inputs: Variable Costs = $150 (flour, sugar), Fixed Costs = $0 (no rent/salaries), Units = 300 cookies.
2. Shut Down Price: $150 / 300 = $0.50 per cookie.
3. Break-Even Price: ($150 + $0) / 300 = $0.50 per cookie.
Conclusion: With no fixed costs, the shut down and break-even prices are identical. Any price above $0.50 is pure profit.
Example 7: Consulting Firm
Scenario: A firm calculates its required price per project.
1. Inputs: Variable Costs = $5,000 (travel, printing), Fixed Costs = $50,000 (office rent, salaries), Units = 10 client projects.
2. Shut Down Price: $5,000 / 10 = $500 per project.
3. Break-Even Price: ($5,000 + $50,000) / 10 = $55,000 / 10 = $5,500 per project.
Conclusion: The firm must charge clients an average of $5,500 per project just to cover all costs.
Example 8: Self-Published Author
Scenario: An author calculates the price for a print run.
1. Inputs: Variable Costs = $2,000 (printing costs), Fixed Costs = $500 (editing, cover design), Units = 500 books.
2. Shut Down Price: $2,000 / 500 = $4.00 per book.
3. Break-Even Price: ($2,000 + $500) / 500 = $2,500 / 500 = $5.00 per book.
Conclusion: The wholesale price must be above $5.00 for the author to make a profit on this print run.
Example 9: Car Wash
Scenario: A car wash owner analyzes monthly operations.
1. Inputs: Variable Costs = $800 (water, soap, wax), Fixed Costs = $3,000 (equipment loan, land lease), Units = 400 cars washed.
2. Shut Down Price: $800 / 400 = $2.00 per car.
3. Break-Even Price: ($800 + $3,000) / 400 = $3,800 / 400 = $9.50 per car.
Conclusion: The basic wash must cover the $2 material cost. The average price across all wash packages must exceed $9.50 to be profitable.
Example 10: Decision to Continue Operating at a Loss
Scenario: A cafe's market price for a sandwich is $8. Should they operate?
1. Inputs: Variable Costs = $3,000 (ingredients for 600 sandwiches), Fixed Costs = $5,000 (rent), Units = 600 sandwiches.
2. Shut Down Price: $3,000 / 600 = $5.00.
3. Break-Even Price: ($3,000 + $5,000) / 600 = $13.33.
Conclusion: The market price ($8) is above the Shut Down Price ($5) but below the Break-Even Price ($13.33). They should continue operating. Each $8 sale covers its $5 cost and contributes $3 towards paying the rent. Shutting down would mean losing the full $5,000 in rent.
Frequently Asked Questions
1. What is the "Shut Down Price"?
It's your Average Variable Cost. This is the absolute minimum price needed to cover the direct costs of making one item. In the short term, you should stop producing if you can't sell for at least this much.
2. What is the "Break-Even Price"?
It's your Average Total Cost. This is the price where your total revenue equals your total costs (fixed + variable), resulting in zero profit. You must sell above this price to be profitable.
3. What's the difference between Variable and Fixed Costs?
Variable Costs change with production (e.g., raw materials). Fixed Costs stay the same regardless of production (e.g., rent).
4. My selling price is between the Shut Down and Break-Even prices. What should I do?
You should continue to operate in the short term. Each sale covers its own variable costs and contributes some money toward paying your fixed costs. Your loss is smaller than if you shut down completely (and still had to pay fixed costs).
5. Why can't I enter "0" for the Number of Units?
The calculations are "per-unit" costs, which requires dividing by the number of units. Dividing by zero is mathematically impossible. You must have produced at least one unit.
6. Does this calculator tell me what my profit is?
No, it gives you the price points needed to determine profitability. Your profit per unit is: `(Your Selling Price) - (Break-Even Price)`.
7. What are some examples of Variable Costs I might forget?
Consider payment processing fees (e.g., 2.9% per transaction), shipping supplies, sales commissions, or the direct energy cost for production machines.
8. Can I use this for a service-based business?
Yes. For "Number of Units," use "Billable Hours," "Projects Completed," or "Clients Served." Your Variable Costs could be project-specific software or subcontracting fees.
9. Should I use costs for a specific time period?
Yes, consistency is crucial. Use your total costs and production numbers from the same period, for example, one month or one quarter.
10. What if I have zero Fixed Costs?
If you're a hobbyist with no overhead, your Shut Down Price and Break-Even Price will be the same. Any price above this value is direct profit.
