A margin target and operating break-even answer different questions.
Gross margin describes what remains after the delivery cost assigned to each sale. Solving price from a margin target uses COGS divided by one minus the target margin. Other variable costs and fixed overhead can still leave the business below operating break-even at that price.
The operating break-even price spreads the fixed cost base over planned units, then adds all entered variable costs per unit. The higher of the two defined prices meets both modeled conditions. This is a cost-based threshold, not evidence of willingness to pay or a recommended market price.
The formula, made clear.
- Gross margin versus markup
- Margin divides gross profit by price; markup divides the same amount by cost.
- Operating break-even price
- Covers the stated fixed and variable operating costs at planned volume; excludes financing, tax and cash timing.
- Price meeting both thresholds
- The higher defined threshold; shown only when both price equations have a meaningful solution.
Put the numbers in context.
$40.00 COGS at a 60% gross-margin target requires $100.00 price. With $10.00 additional variable cost, $50,000.00 fixed costs and 1,000 units, operating break-even also requires $100.00 per unit.
| Input | Example value |
|---|---|
| COGS per unit | $40.00 |
| Other variable cost per unit | $10.00 |
| Target gross margin | 60% |
| Fixed costs in the planning period | $50,000.00 |
| Planned units in the period | 1,000 units |
| Price for the exact gross-margin target | $100.00 |
What this calculation assumes
Constant unit costs, sales mix and fixed costs, with no volume-dependent fees or capacity steps. COGS is treated as variable; avoid including fixed costs twice. Zero planned volume has no defined break-even price. Positive COGS cannot yield 100% gross margin at a finite price; with zero COGS no unique exact target price exists.
Methodology references
What to consider next.
Check market acceptance and delivery capacity at the required price, then test how a negotiated discount changes contribution and the necessary volume.
How we approach financial models →