A price floor is not a pricing strategy
The break-even price is the point where the contribution on one order is zero after the costs you entered. It is a floor for a promotion, a new variant or a wholesale negotiation, not a recommendation for what customers will pay. The target price adds a profit requirement on top of that floor.
Markup and margin are not interchangeable here. A 20% markup on cost is not a 20% margin on price, and it becomes even less accurate when payment and platform fees are charged as a percentage of the selling price. The calculator keeps those two ideas separate so the result can be checked line by line.
Separate fixed costs from percentage fees
Fixed costs in this model are the amounts that stay the same whether the order sells for $40 or $80: product cost, fulfillment, packaging, the fixed payment charge, planned ad cost and a return reserve. Variable fees are the percentages that grow with the price: the payment rate and any platform or marketplace rate.
That distinction matters because a percentage fee is charged on the final price, not on your cost. If you add a 2.9% fee to your cost and then set a price, you recover less than you intended. The formula moves the fee into the denominator, where it belongs.
The formula, with a worked example
For break-even, divide fixed cost per order by (1 − variable fee rate). For a target profit amount, add that amount to fixed cost before dividing. For a target contribution margin, subtract the margin from the same denominator: price = fixed cost ÷ (1 − fee rate − target margin).
Using product cost $18, fulfillment $6, packaging $1, payment 2.9% + $0.30, ads $12, a return reserve of $1.50 and a 20% target margin: fixed cost is $38.80. The break-even price is $38.80 ÷ 0.971 = $39.96. The target price is $38.80 ÷ 0.771 = $50.32. At $50.32 the payment fee is about $1.76 and contribution is about $10.06, or 20.0% of price. Small differences at the cent level come from display rounding.
Why the target price is higher than cost plus markup
Suppose you marked the same $38.80 of cost up by 20%, producing $46.56. The payment fee at that price is about $1.65, leaving a contribution of about $6.11, or 13.1% of price — well below the 20% margin you intended. The markup was applied to cost, while the margin and the fee both apply to revenue.
This is the most common pricing error in DTC stores: a price that looks like it has a healthy margin until the gateway statement arrives. The calculator avoids the error by solving for the price and then recalculating the fee at that price.
When no price can satisfy the model
If the payment and platform rates add up to 100% or more, every additional dollar of price is consumed by variable fees and no finite price can cover the fixed cost. If the target margin plus the fee rate reaches 100%, the same problem appears: the denominator is zero or negative. The calculator shows an infeasible state instead of an infinite or negative price.
A zero fixed cost produces a zero break-even price, which is mathematically valid but rarely useful. Enter the costs you actually expect to pay, and use the fee source and checked date shown near the result rather than a remembered rate.
How to use the floor in a real store decision
Compare the floor with the price customers already accept. If the market price is below your floor, the product loses money at that price unless you change fulfillment, payment mix, advertising or the product cost. If the target price is far above the market, test a smaller bundle, a different acquisition channel or a lower return reserve before assuming the product cannot work.
Recheck the model when your gateway rate, Shopify plan, ad cost per order or return rate changes. For a full order-level view, use the Shopify profit margin calculator; for the advertising threshold, use the break-even ROAS calculator. Keep the same cost definitions across the three tools so the comparison stays meaningful.