A 10% Price Cut: How Much More Must You Sell to Break Even?
More sales may not replace the lost contribution
When sales proposes a 10% price cut, expected revenue growth alone is insufficient. Examine how much remains per unit after variable costs, then calculate sales needed to cover fixed costs on consistent assumptions. A 10% price reduction does not mean selling 10% more restores break-even.
This is a pricing and management-reporting tool, not proof of demand or sufficient cash. The example is a hypothetical single-product business for one month, not a Kerwin & Vance client result or client pricing recommendation.
Classify costs before using the formula
The Small Business Administration’s unit break-even formula divides fixed costs by price per unit less variable cost per unit. That contribution first covers fixed costs before leaving modelled profit. Do not substitute a gross-margin percentage from a report using a different cost classification.
Separate volume-linked items such as materials, packaging and actual selling fees from costs fixed within the volume range analysed. Avoid subtracting costs already included elsewhere and align units, periods and tax treatment. Assign unresolved classifications to a data owner before relying on the model.
Base case: 300 units to break even
Assume a price of THB 500, variable cost of THB 300 per unit and monthly fixed costs of THB 60,000. Unit contribution is THB 200, so break-even is 60,000 ÷ 200 = 300 units. Check: THB 150,000 revenue less THB 90,000 variable costs and THB 60,000 fixed costs leaves zero in the model.
Show that the assumed price is the amount retained after the discounts considered, unit costs stay constant in this range, and expansion adds no costs. If necessary costs are omitted, “break-even” describes incomplete inputs, not the business’s actual viability.
At THB 450, the threshold becomes 400 units
Cutting THB 500 by 10% gives THB 450. With all costs unchanged, contribution becomes THB 150 and break-even 60,000 ÷ 150 = 400 units: 100 more than the old threshold, about 33.3%, not 10%. This compares break-even thresholds, not the sales needed to preserve an existing profit above 300 units.
At a forecast 360 units, the original case gives 360 × 200 − 60,000 = THB 12,000; the discounted case gives 360 × 150 − 60,000 = a THB 6,000 loss on these assumptions. Approval should examine total contribution and evidence supporting demand, not simply whether volume might rise.
Stress-test capacity and cost assumptions
If delivery capacity is only 360 units per month, 400 is infeasible under the existing setup. Extra shifts, space or delivery expenses require recalculation. Hypothetically, expansion raises fixed costs to THB 72,000 while contribution remains THB 150: the threshold becomes 480 units. Adding capacity can move the target too.
If price leaves no positive contribution, selling more cannot produce a feasible break-even under unchanged assumptions. A multi-product business must consider its sales mix, not divide all fixed costs by its best product’s contribution. Modelled profit also differs from cash because collections and payments occur at different times.
Turn the model into approval and review criteria
Before approving a discount, request the base case, proposed price, changed costs, break-even volume, delivery capacity and downside result. Name assumption owners and triggers for pausing or reviewing the plan, such as contribution below the agreed level or insufficient capacity. Set thresholds for the business rather than adopting illustrative percentages as policy.
Kerwin & Vance lists management reporting and internal controls among its services. Verifiable price, cost and capacity inputs support focused discussion of decision criteria without promising sales or profit. After implementation, compare actual results with assumptions and record differences instead of retaining an obsolete model.
