Fixed costs and variable costs
Every cost in a web store falls into one of two groups. Fixed costs stay the same each month, whatever you sell. Variable costs grow with every order.
Fixed costs for a typical WooCommerce store:
- Hosting, domain and email.
- Apps and plugins. Divide yearly licenses by 12.
- Rent for an office, a workspace or a storage unit.
- Staff, including your own salary if you take one.
- Accounting and bookkeeping.
- Other running bills, such as insurance, phone and software.
Variable costs come with each order:
- The product cost, what you paid for the goods.
- What the carrier charges you for shipping.
- Payment fees, usually a percentage plus a fixed amount.
- Packaging.
Ad spend sits in between. You set a budget, so it looks fixed. But you spend it to win orders, so this guide counts it per order. For a starting figure, divide last month’s ad spend by last month’s orders.
Contribution per order
Contribution is what one order leaves after its own costs. It’s the money that pays your fixed costs. Once those are covered, the rest is profit.
Contribution = order value − product cost − shipping − payment fee − ad spend per orderUse order values excluding VAT. The VAT isn’t yours to keep.
Take a sample order of $60 excluding VAT. The products cost $24 and shipping costs you $6. The payment fee is 2.9% plus $0.30, which is $2.04. Ads cost $8 per order. That leaves a contribution of $19.96, or 33.3% of the order.
Our guide to profit per order in WooCommerce covers each of these costs in more detail.
The break-even formula
Divide your monthly fixed costs by the contribution per order. The answer is how many orders a month you need before the store makes any profit.
Break-even orders per month = monthly fixed costs ÷ contribution per orderRound up. Half an order doesn’t pay the rent.
Here is a sample store, with the contribution from above:
| Sample numbers | Per month |
|---|---|
| Rent for a small workspace | $400 |
| Staff, one part-time helper | $1,500 |
| Apps, plugins and hosting | $150 |
| Accounting | $200 |
| Other running bills | $100 |
| Fixed costs | $2,350 |
| Contribution per order | $19.96 |
| $2,350 ÷ $19.96 | 117.7 |
| Break-even orders | 118 a month, about 4 a day |
So this store needs 118 orders a month before it earns a dollar. Order 119 is the first one that adds profit.
Adding a salary or a profit target
Break-even means the store pays its bills. It doesn’t mean it pays you. You can fix that in two ways. Put your salary in the fixed costs, or add a profit target on top.
Orders for a target = (fixed costs + target profit) ÷ contribution per orderExample: ($2,350 + $1,000) ÷ $19.96 = 167.8, so 168 orders a month
That’s 50 more orders a month for $1,000 more profit. A higher contribution moves the number faster. At $24.96 per order, break-even drops from 118 orders to 95.
Try your own numbers below. Use amounts excluding VAT. Nothing you type leaves this page.