Glossary - Planning and finance
Cost-volume-profit analysis
Cost-volume-profit (CVP) analysis is a planning method that shows how profit changes as sales volume, selling price, variable costs and fixed costs change. It splits every cost into variable or fixed, then uses contribution margin per unit to find the break-even point, the volume needed for a target profit, and the margin of safety.
| Variable | Definition |
|---|---|
| Price | Net selling price per unit after discounts. |
| Variable cost per unit | Every cost that moves with the unit: landed COGS, fulfilment, shipping, payment fees and variable marketing. See variable costs. |
| Contribution margin per unit | Price minus variable cost per unit. Divided by price, it is the contribution margin ratio. |
| Fixed costs | Costs that do not move with volume in the range you are planning: salaries, rent, software, retainers. See fixed costs. |
| Margin of safety | (Actual or planned units − Break-even units) ÷ Actual or planned units. How far sales can fall before you lose money. |
Worked example
At 1,600 units the store makes 350 × A$32, or A$11,200 a month. A 10% discount looks small on the price tag, but it takes a quarter of the contribution margin per unit (A$8 of A$32), so break-even rises from 1,250 to 1,667 units. Unless the promotion lifts volume by more than 67 units above the current 1,600, the business moves from profit to loss, and matching the old A$11,200 profit takes 2,134 units: A$51,200 ÷ A$24. We held the other per-unit costs flat for simplicity; payment fees would fall slightly with the lower price. This is the logic behind discount codes that lose money, and the discount impact calculator runs it on your own numbers.
What makes a good cost-volume-profit analysis?
CVP has no good number of its own; its value is in the questions it answers before you commit. A useful analysis uses variable costs down to the full contribution margin, not just product cost, so the break-even is real. It is run per product line or channel where their margins differ, because a single blended margin hides which part of the business carries the rest. And it states a relevant range: fixed costs stay fixed only until the next warehouse, hire or software tier.
A healthy result is a margin of safety wide enough to survive a bad month, and a clear view of which lever moves break-even most: price, cost or volume. Break-even analysis works the break-even half of CVP in depth, and the break-even units calculator and price increase calculator test single moves quickly.
CVP vs related metrics
| Metric | What it tells you | How it differs |
|---|---|---|
| Break-even point | The volume where profit is zero | One output of CVP; CVP also solves for target profit and tests changes. |
| Contribution margin | What each sale leaves after variable costs | The engine of CVP: every CVP formula divides by it. |
| Scenario analysis | Outcomes under several sets of assumptions | Broader: can vary demand, cash timing and many inputs at once. CVP is the single-period profit core of it. |
| Unit economics | Profit per order or customer | The per-unit inputs CVP multiplies up to a whole-business view. |
Common mistakes
- Stopping variable costs at COGS. Using gross margin in place of contribution margin leaves shipping, fees and ad cost out, so break-even comes out far too low.
- Assuming fixed costs never step. Double volume and you may need another packer or a bigger 3PL tier. State the range the analysis holds for.
- Using one blended margin across mixed products. CVP assumes a stable sales mix. If the mix shifts toward low-margin lines, break-even moves even when total units hold.
- Treating marketing as fixed. Most ecommerce ad spend scales with orders. Put it in variable cost per unit, or break-even will look reachable when it is not.
- Planning volume without asking where it comes from. The target-units line is arithmetic. Whether the market will take those units at that price and CAC is a separate question for demand forecasting.
FAQ
CVP analysis tells you how many units you must sell to break even, how many you need for a target profit, and how much sales can fall before you make a loss. It is also used to test a price change, a discount, a cost increase or a new fixed cost before committing to it.
Costs split cleanly into fixed and variable, selling price and variable cost per unit hold steady across the volume range, fixed costs do not step within that range, and the sales mix stays stable. When one of these breaks, rerun the analysis for the new range.
Subtract break-even units from actual or planned units, then divide by actual or planned units. At 1,600 units sold and a 1,250-unit break-even, the margin of safety is 350 ÷ 1,600, or 21.9%. Sales could fall that far before profit reaches zero.
Break-even analysis finds the single volume where profit is zero. Cost-volume-profit analysis uses the same inputs to answer more questions: the volume needed for any target profit, the margin of safety, and how each change to price, cost or volume moves the result.
Updated September 2026