Calculate the minimum selling price required to recover the costs of a metal fabrication or manufacturing job, then add a target profit if required.
Compare a proposed selling price against the calculated break-even price.
For a job with fixed costs and a variable cost per unit, the total break-even quantity or price depends on the relationship between fixed costs, variable costs and selling price.
For example, if fixed costs are $1,000, variable cost is $50 per unit and the job quantity is 100 units:
Fixed job costs are costs that do not change directly with the number of finished units in the specific job.
For a simplified job estimate, shop overhead that has already been allocated as a fixed job amount can also be included here.
Variable costs increase as more units are produced or sold.
If a cost does not behave consistently per unit, consider treating it as a fixed or separate job cost instead.
Break-even is not a profitable price. It represents the point where the revenue exactly covers the included costs.
At break-even, profit is zero. Any price above break-even produces a positive contribution toward profit under the assumptions entered.
The target-margin result is more useful when the goal is to establish a commercially profitable quotation rather than simply recover costs.
The calculator can convert the break-even cost into a selling price that achieves the target profit margin.
For example, if total job cost is $6,000 and the desired margin is 20%:
That price produces $1,500 profit, which is 20% of the $7,500 selling price.
Fixed costs are spread across the production quantity. Increasing the quantity therefore lowers the fixed-cost portion per unit, assuming the fixed cost does not increase.
| Quantity | Fixed Cost | Variable Cost / Unit | Total Cost | Break-Even / Unit |
|---|---|---|---|---|
| 10 | $1,000 | $50 | $1,500 | $150 |
| 25 | $1,000 | $50 | $2,250 | $90 |
| 50 | $1,000 | $50 | $3,500 | $70 |
| 100 | $1,000 | $50 | $6,000 | $60 |
This is why setup and tooling costs can have a significant effect on small fabrication batches.
Metal jobs often contain a mixture of fixed and variable costs. A small steel fabrication order may include drawing review, setup, cutting, fitting, welding, grinding, painting, inspection and delivery.
Some of these costs scale with quantity while others are incurred once for the job. Separating them gives a more useful break-even estimate than applying one percentage to the raw material price.
Material waste should also be considered. If the entered variable material cost does not already include expected scrap, add an appropriate waste allowance so the break-even calculation does not understate actual cost.
What is the minimum break-even selling price?
It is the selling price at which the revenue from the job equals the total included costs. At this price, the calculated profit is zero.
Does break-even mean the job is profitable?
No. Break-even means there is neither profit nor loss under the entered assumptions.
Should material be included?
Yes. Material is normally one of the major variable costs in a metal fabrication job.
Should labor be included?
Yes. Direct labor should be included either in the variable unit cost or as an appropriately allocated fixed job cost.
How do I calculate a profitable selling price?
Calculate the total break-even cost first, then apply the desired profit margin or profit amount.
Why is the break-even price lower for larger quantities?
When fixed job costs remain unchanged, they are distributed across more units, reducing the fixed-cost portion of each unit.
Can I use this for one-off fabrication jobs?
Yes. For a one-off job, the quantity can be set to one and the complete estimated job cost entered.
Can I use this for metal manufacturing batches?
Yes. Enter the batch quantity and the variable cost per finished unit, along with the fixed costs associated with the batch.