Holiday discounts are tempting. Black Friday and Cyber Week are around the corner, and it can feel like you need a big sale to keep up. But a promotion that brings in more customers can still lose money if you have not checked the math. The fix takes about 20 minutes: know your break-even point before you set any discount. Here is how.

What break-even actually means

Your break-even point is the amount you need to sell, in dollars or units, to cover all of your costs. Below it, you are losing money. Above it, you are earning a profit. The formula is simple:

Break-even units = Fixed costs ÷ (Price per unit − Variable cost per unit)

The number in parentheses is called your contribution margin: what each sale contributes toward covering fixed costs after you pay the direct costs of making that sale.

Step 1: List your fixed costs

Fixed costs are the bills that arrive no matter how much you sell. Think rent, insurance, software subscriptions, salaried pay, loan payments and equipment leases. Add up a typical month. If you are planning a promotion that runs a few weeks, use the portion of fixed costs that covers that period.

Step 2: Find your variable cost per sale

Variable costs rise and fall with each sale: ingredients, materials, packaging, shipping, payment processing fees, sales commissions and the labor time tied to making the item. Do not forget the small items. Card fees and shipping supplies are easy to overlook, and they can quietly eat into a thin margin.

Step 3: Run the numbers with a real example

Imagine a small candle shop with $3,000 in monthly fixed costs. A candle sells for $25 and costs $9 to make, package and process. The contribution margin is $16 per candle.

Break-even is $3,000 ÷ $16 = 187.5, so about 188 candles a month.

Now say the shop wants to run a 20 percent holiday discount. The new price is $20, and the contribution margin drops to $11 per candle. Break-even becomes $3,000 ÷ $11 = about 273 candles. That means the shop would need to sell roughly 45 percent more candles just to cover the same costs. (These numbers are an illustration only, not a forecast.)

Step 4: Ask whether the discount can pay for itself

Before you commit to a sale, ask yourself:

  • How many extra sales do I realistically need to match my normal profit?
  • Do I have enough inventory, staff and shipping capacity to handle them?
  • Will discounted customers come back at full price, or only wait for the next sale?

If the volume you would need looks unrealistic, consider alternatives.

Smarter alternatives to a deep discount

  • Bundles: Combine items so the customer gets value while your average order grows.
  • Gift with purchase: A low-cost add-on can feel generous without cutting the price of the main item.
  • Free shipping thresholds: Set the minimum slightly above your average order to nudge larger baskets.
  • Limited-time offers on slow movers: Discount items you want to clear, not your best sellers.
  • Loyalty perks: Early access or a small thank-you for repeat customers keeps relationships strong without a public markdown.

Common mistakes to avoid

  • Ignoring payment fees and shipping when calculating costs.
  • Using revenue instead of margin to judge success. A busy day is not the same as a profitable one.
  • Forgetting your own time. If you are working extra hours for little return, the sale may not be worth it.
  • Discounting everything. Targeted offers protect your margin.

Check your results afterward

Once the promotion ends, compare actual sales and costs with your break-even number. Note what worked, which items sold, how many customers were new, and whether any came back later. Write down two or three lessons so you can plan better next year.

A note on tools

You do not need fancy software. A simple spreadsheet with columns for price, variable cost, margin and break-even units is enough. Many small business owners update it quarterly. If your numbers are complex, a local accountant or a free small business advisory service can help you check them.

The bottom line

A holiday sale is a tool, not a goal. Knowing your break-even point lets you decide how deep a discount you can afford, and whether to run one at all. Spend 20 minutes on the math now and walk into the busy season with confidence. This is general educational information and not financial advice, so adapt it to your own situation.

Image: Desktop with laptop and calculator (Unsplash) by AnonymousUnknown author via Wikimedia Commons, CC0 1.0