Break-even and the most you can pay for an item

Working backwards gives you a number to hold in your head before you pick anything up: the most you can pay and still get what you need from the sale.

Step one: see what is left to spend

Start with the price you expect it to sell for. Take off the marketplace's percentage fee, any fixed fee, shipping and packaging. What remains is the money that has to cover the item itself and your profit.

These example numbers are made up. You expect to sell for $50.00. The fee is 13% ($6.50), shipping is $5.00 and packaging is $1.00. That leaves $37.50.

Step two: set a target

You can set the target as a dollar profit, as a return on what you pay, or as both.

• A profit target is the simplest: subtract it. If you want at least $10.00 profit, the most you can pay is $37.50 − $10.00 = $27.50.
• A return target is a share of what you pay. To get at least a 30% return on cost you need profit to be at least 30% of the cost, so the cost plus 30% of the cost must fit inside $37.50. That is $37.50 ÷ 1.30, which comes to $28.84 when rounded down to the cent. Profit at that price is $8.66.
• With both targets, the lower number wins. Here that is $27.50, because paying $28.84 would break the $10.00 profit target. At $27.50 your profit is $10.00, which is about a 36% return on cost.

Why you round down

The most you can pay is a ceiling. Rounding up to the next cent would put you a fraction under your target, so the figure is always rounded down.

The break-even price is the other side of the same sum

Break-even asks what you must sell for to avoid a loss, given what you paid. Working backwards asks what you can pay, given what you expect to sell for. If the most you can pay for a target is less than the tag price, the target does not work at that sale price, and you will need either a higher sale price or a smaller target.

What this leaves out

Sales tax, returns, advertising and your time are not in the sum. The sale price is also your estimate, not a promise, so test your numbers with a lower sale price too.

Try your own figures in the maximum buy price calculator. To see how profit, return on cost and margin differ, read the guide to resale profit, ROI and margin.