Skill: leooooooow/break-even-analyzer (version 1.1.0)

--- name: Break-Even Analyzer description: Calculate break-even points for e-commerce products and campaigns including fixed/variable cost analysis, contribution margin optimization, scenario modeling, and profitability timelines for informed pricing and launch decisions. --- # Break-Even Analyzer Determine exactly when a product, campaign, or business initiative becomes profitable. This skill walks you through cost classification, contribution margin calculation, scenario modeling, and sensitivity analysis so you can make data-driven launch and pricing decisions. ## Quick Reference | Decision | Strong | Acceptable | Weak | |---|---|---|---| | **Cost classification** | Every cost mapped to fixed or variable with source documentation | Major costs classified, minor estimated | Lump-sum "total cost" with no breakdown | | **Contribution margin** | Calculated per SKU with all variable costs included | Calculated at product-line level | Guessed or based on gross margin alone | | **Break-even units** | Precise calculation with sensitivity ranges | Single-point calculation | "We need to sell a lot" | | **Scenario modeling** | 3+ scenarios (pessimistic, base, optimistic) with probability weights | Base case only | No scenario analysis | | **Time horizon** | Monthly cash flow projection to break-even date | Quarterly estimate | No timeline | | **Sensitivity analysis** | Key variables tested (price ±10-20%, volume ±25%, COGS ±15%) | One variable tested | No sensitivity testing | ## Solves 1. **Blind launches** — Launching products without knowing the minimum sales needed to cover costs 2. **Mispriced products** — Setting prices based on gut feel rather than cost structure analysis 3. **Hidden cost traps** — Overlooking variable costs that erode margins (returns, payment fees, shipping) 4. **Campaign overspend** — Running marketing campaigns without knowing the sales needed to justify the spend 5. **Inventory risk** — Ordering too much inventory before validating demand at the break-even threshold 6. **Scaling miscalculations** — Assuming linear cost scaling when step-fixed costs create new break-even points 7. **Investor misalignment** — Presenting financial projections without rigorous break-even analysis ## Workflow ### Step 1: Classify All Costs Separate every cost into fixed or variable categories. **Fixed costs** (don't change with volume): - Rent/warehouse lease - Salaries (non-commission) - Software subscriptions - Insurance - Equipment depreciation - Loan payments **Variable costs** (change per unit sold): - Product COGS (materials, manufacturing) - Shipping & fulfillment per order - Payment processing fees (typically 2.9% + $0.30) - Marketplace commissions (e.g., Amazon 15%) - Returns & refund costs (typically 5-15% of sales) - Packaging materials per unit - Customer acquisition cost (if attributable per unit) **Step-fixed costs** (fixed within ranges, then jump): - Warehouse staff (1 picker per 200 orders/day) - Software tiers (e.g., Shopify Basic → Shopify → Advanced) - Storage fees (per pallet or bin threshold) ### Step 2: Calculate Contribution Margin ``` Contribution Margin per Unit = Selling Price - Total Variable Costs per Unit Contribution Margin Ratio = Contribution Margin / Selling Price ``` Include ALL variable costs, not just COGS: | Component | Amount | Notes | |---|---|---| | Selling price | $49.99 | After any standard discounts | | Product COGS | -$12.00 | Manufacturing + materials | | Shipping cost | -$5.50 | Average across zones | | Payment processing | -$1.75 | 2.9% + $0.30 | | Packaging | -$2.00 | Box, insert, tape, label | | Marketplace fee | -$7.50 | 15% if on Amazon | | Returns allowance | -$2.50 | 5% return rate × full cost | | **Contribution margin** | **$18.74** | **37.5% ratio** | ### Step 3: Calculate Break-Even Point **Basic break-even (units)**: ``` Break-Even Units = Fixed Costs / Contribution Margin per Unit ``` **Break-even (revenue)**: ``` Break-Even Revenue = Fixed Costs / Contribution Margin Ratio ``` **Break-even with target profit**: ``` Units for Target Profit = (Fixed Costs + Target Profit) / Contribution Margin per Unit ``` ### Step 4: Build Scenario Models Create three scenarios minimum: | Scenario | Price | Volume/mo | Variable Cost | Fixed Cost | Break-Even | |---|---|---|---|---|---| | Pessimistic | $44.99 | 150 | $33.25 | $8,000 | 681 units | | Base | $49.99 | 250 | $31.25 | $8,000 | 427 units | | Optimistic | $49.99 | 400 | $28.75 | $8,000 | 377 units | Weight scenarios by probability: Pessimistic 25%, Base 50%, Optimistic 25%. **Expected break-even** = (681 × 0.25) + (427 × 0.50) + (377 × 0.25) = **478 units** ### Step 5: Run Sensitivity Analysis Test how break-even changes when key variables shift: **Price sensitivity** (±10%): - Price $44.99: Break-even = 582 units (+36%) - Price $49.99: Break-even = 427 units (base) - Price $54.99: Break-even = 338 units (-21%) **Volume sensitivity**: Project months to break-even at different monthly sales rates. **COGS sensitivity** (±15%): - COGS +15%: Break-even = 498 units (+17%) - COGS base: Break-even = 427 units - COGS -15%: Break-even = 372 units (-13%) ### Step 6: Project Timeline to Break-Even Map the break-even point to a calendar timeline: | Month | Units Sold | Cumulative | Revenue | Cumulative Profit | |---|---|---|---|---| | Month 1 | 80 | 80 | $3,999 | -$6,501 | | Month 2 | 150 | 230 | $7,499 | -$4,191 | | Month 3 | 220 | 450 | $10,998 | -$871 | | Month 4 | 250 | 700 | $12,498 | $3,814 | **Break-even month**: Month 3-4 (at ~427 cumulative units) ### Step 7: Document and Present Compile findings into a one-page executive summary with: - Break-even units and revenue - Expected timeline - Top 3 risks (from sensitivity analysis) - Recommended pricing strategy - Go/no-go recommendation with confidence level ## Example 1: New DTC Product Launch **Scenario**: Launching a premium yoga mat at $89.99. Monthly fixed costs: $12,000 (warehouse, staff, software, marketing base spend). **Cost classification**: - COGS: $22.00 (materials + manufacturing) - Shipping: $8.50 (oversized item surcharge) - Payment processing: $2.91 (2.9% + $0.30) - Packaging: $3.50 (custom box + insert) - Returns (8%): $7.20 - **Total variable**: $44.11/unit **Contribution margin**: $89.99 - $44.11 = **$45.88 (51.0%)** **Break-even**: $12,000 / $45.88 = **262 units/month** **Scenario modeling**: - Pessimistic (price $79.99, COGS +10%): 384 units/month → 5.5 months - Base ($89.99): 262 units/month → 3.2 months - Optimistic ($89.99, COGS -10%): 233 units/month → 2.1 months **Recommendation**: Launch is viable if marketing can drive 262+ units/month. At $30 CAC, marketing budget needs $7,860/month to hit base case, raising effective fixed costs to $19,860 and break-even to 433 units. ## Example 2: Amazon Marketplace Expansion **Scenario**: Existing DTC brand ($34.99 product) evaluating Amazon launch. Additional fixed costs: $2,500/month (Amazon advertising base, A+ content, brand registry tools). **Cost classification (Amazon-specific)**: - COGS: $8.00 - FBA fee: $5.50 - Referral fee (15%): $5.25 - Shipping to FBA: $1.50 - Payment processing: $0.00 (included in referral) - Packaging: $1.50 - Returns (12% on Amazon): $4.20 - PPC cost per unit (estimated): $4.50 - **Total variable**: $30.45/unit **Contribution margin**: $34.99 - $30.45 = **$4.54 (13.0%)** **Break-even**: $2,500 / $4.54 = **551 units/month** **Sensitivity analysis**: - If PPC drops to $3.00/unit: Break-even = 385 units (-30%) - If returns drop to 8%: Break-even = 439 units (-20%) - If price increases to $37.99: Break-even = 331 units (-40%) **Recommendation**: Thin margins make this risky. Recommend testing at $37.99 price point and optimizing PPC to < $3.50/unit before committing to full inventory. Break-even at 331 units is more achievable. ## Common Mistakes 1. **Forgetting payment processing fees** — At 2.9% + $0.30 per transaction, this is $1.75 on a $50 item. Over 10,000 units, that's $17,500 you didn't account for. 2. **Using gross margin instead of contribution margin** — Gross margin only subtracts COGS. Contribution margin includes ALL variable costs (shipping, fees, returns). The difference can be 15-25 percentage points. 3. **Ignoring return costs** — Returns aren't just lost revenue; they include reverse shipping, inspection labor, restocking, and often product write-offs. Budget 5-15% of sales. 4. **Treating marketing as fixed** — If you spend $X per acquired customer, that's a variable cost. Only base marketing spend (brand campaigns, content creation) is fixed. 5. **Linear scaling assumptions** — Costs don't scale linearly. You'll hit step-fixed costs: new warehouse staff at 200 orders/day, higher software tiers, additional customer service reps. 6. **Single-scenario planning** — A single break-even number creates false precision. Always model pessimistic and optimistic cases to understand the range. 7. **Ignoring seasonality** — Monthly break-even assumes steady sales. If 40% of revenue comes in Q4, your break-even timeline looks very different month-by-month. 8. **Mixing product-level and business-level analysis** — Break-even for a single product is different from break-even for the business. Be clear about which fixed costs to allocate. 9. **Forgetting opportunity cost** — Capital tied up in inventory could be earning returns elsewhere. Factor in the cost of capital (typically 8-15% annually). 10. **Not updating the model** — Break-even analysis is not a one-time exercise. Update monthly with actual costs and sales data to track progress and adjust projections. ## Resources - [Output Template](references/output-template.md) — Break-even analysis report template - [Cost Classification Guide](references/cost-classification-guide.md) — Comprehensive e-commerce cost taxonomy - [Scenario Modeling Framework](references/scenario-modeling-framework.md) — How to build weighted scenario models - [Quality Checklist](assets/quality-checklist.md) — Analysis validation checklist


Security scan verdicts — ClawScan: clean | static analysis: clean | VirusTotal: clean | SkillSpector: clean (LOW)