Blog Post

How to calculate breakeven analysis for advertising campaigns

  • By W. Gray
  • •
  • 12 Apr, 2019
  • •

Putting a lot of time and effort into creating a product or service that your customers will love is an incredibly important part of getting your business off the ground. But investing a bunch of resources into your product or service, only to have it not perform well, seems like an exercise in futility. How can you make your business go from incredible offering to incredible offering that generates a lot of sales and repeat business? 

 The answer lies in marketing and measuring your business’s/product’s key performance indicators (KPI), specifically breakeven analysis. Even if you value your input as primarily the creative mastermind behind your primary offering, it’s good to understand these factors and how they relate to your success. Read on to learn more about how breakeven analysis is an essential tool that every small business owners should know. 

 Total Break Even Point = Fixed Cost/ (Unit Selling Price – All Unit Variable Costs) 

Breakeven Analysis and the Marketing Mix

Before you get into the nitty gritty details of calculating your breakeven analysis, it is important to understand its value as part of the marketing mix. After all, this metric should guide decisions related to your product, pricing and promotion. 

 The marketing mix is the basic breakdown of product components which influence marketing decisions and product sales. It is a toolkit that allows business owners and product/service creators to analyze their offering in terms of how they want them to stand out in the marketplace. It also provides valuable instruction for categorizing metrics to measure product success. The marketing mix includes the following components: 


  • Product - How much does it cost to produce and design your products? 
  • Promotion - What does it cost to promote your products? 
  • Place - Where are you selling your products? 
  • Pricing - How much will I sell my product for? 

Pricing is essential for creating value for your customers, as well as profit for your company, so you want to ensure that the value you create is worth the investment you put forth up front. Breakeven analysis helps to determine this value and should ultimately be able to help you decide whether to offer a product or not. 

What is Breakeven Analysis

How much you plan to invest in training, materials, production, web hosting and overhead costs for your facility all factor into the cost of bringing the product to market. Even if you plan to offer limited cost online courses and ebooks, you should consider the costs of training and time that went into course preparation. 

To do this, you will need to isolate cost items as they factor into two categories: 

  • Fixed costs - Fixed costs are unchanging overhead costs, like rent and electricity for a physical workplace, or web hosting and other online service costs for online-only companies. 

  • Variable costs - Variable costs are costs that fluctuate per unit sold. They include product components, as well as hourly wages for employees that work to produce the product or service on an on-demand basis. 

You will perform a breakeven analysis to determine the impact that these costs have on your bottom line and what price point makes sense for your offerings. The breakeven analysis is a formula that you can use to calculate your precise costs per product and determine how much you need to earn per unit sold, plus how much profit you need to earn per unit sold in order to break even.  

 Sell too few products or at too low of a price, your break even will require you to sell more products or service hours in order to make up your expenditures.  

 If you fail to meet the break even number, you will lose money on your product sales and your endeavor will not succeed. However, if you can manage to sell even one more unit than you require to break even, you will make a profit. 

Cost per Click

For online-only businesses, cost per click is an important metric related to breakeven analysis that helps you to discern the value of ads that promote traffic to your site, and it’s a critical component of the breakeven equation. Analyzing marketing costs related to clickable advertisements on your website and across the web gives you perspective on the amount of money that should be spent on advertising campaigns. 

 CPA x CVR = Break even CPC 

 The amount of money spent on campaign should be surpassed by the projected profit that can be earned from product sales driven by the campaign. There are formulas that you can run to calculate the maximum expenditure that should be made per product or service. 

Determining Product Viability

Ultimately, the goal is to sell far more units than required to break even in order to maximize your profitability. This is the foundation of a successful business. Utilizing your marketing mix to harness profits through product sales and accurate pricing will keep your products and services relevant to the markets you’re trying to reach. 

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