Margin · Breakeven

Margin and breakeven builder

Enter unit COGS, fixed costs, and target margin. The tool returns sale price, gross margin, breakeven units, and the cash-cycle implication. Pricing math is the floor; cash flow is the ceiling.

Last updated 2026-05-08. Math runs in your browser, no data leaves your computer.

General guidance only, not legal or professional engineering advice. Verify against the cited primary sources (IMDG, REACH, ChAFTA, RCEP, Customs Tariff Act, supplier SDS, etc.) before committing to a shipment, declaration, or contract. Sourzi assumes no liability for outcomes based on these calculators.

Itemise unit COGS first, then total monthly fixed costs, then the target margin. The tool computes the required sale price to land the target margin and the unit volume needed to break even on fixed costs.

Variable cost per unit: factory price plus freight plus duty plus inland trucking. Excludes fixed costs.

Warehouse, salaries, insurance, financing, IT. Costs that exist whether you sell 0 units or 1,000 units.

Industry benchmark: commodity chemicals 8 to 12 percent; speciality 25 to 40 percent. Pick a number defensible to a buyer.

Realistic forecast for the product. Used to test whether the breakeven number is a stretch or a comfortable margin of safety.

The pricing arithmetic

Three numbers drive the math: variable cost per unit (the COGS), fixed costs per month (rent, salaries, insurance, financing), and target gross margin. The required sale price is COGS divided by (1 minus target margin). At a 20 percent target margin and 42 USD COGS, sale price is 42 / 0.80 = 52.50 USD. Margin per unit is 10.50 USD. Each unit sold contributes 10.50 USD toward absorbing fixed costs and earning profit.

Breakeven volume is fixed costs divided by margin per unit. With 25,000 USD monthly fixed costs and 10.50 USD margin per unit, breakeven is 2,381 units per month. Below 2,381 units, the business loses money every month. Above, every additional unit drops 10.50 USD to the bottom line. The expected monthly volume of 800 units would land the business 1,581 units short of breakeven, which is a serious problem; either the price has to rise (lifting margin per unit), the fixed cost structure has to drop, or the volume has to expand.

Margin of safety is the gap between expected volume and breakeven volume, expressed as a percentage. A 20 percent margin of safety means the business can lose 20 percent of expected volume before it falls into a loss. Healthy distributors aim for 25 to 40 percent margin of safety; below 15 percent, the business is one bad month from being underwater.

Cash flow is the second arithmetic, separate from margin. A 20 percent margin business that sells on 90-day buyer terms and pays suppliers on 30-day terms ties up working capital equal to 60 days of cost. For a 1 million USD per month business, that is 2 million USD of working capital permanently locked up. The margin number is positive but the cash position is negative. Pricing math gives you the floor; cash flow gives you the ceiling.

Worked example. The 8 percent margin trap

The booking. A US chemical distributor sells 800 drums per month at 52.50 USD each, against COGS of 48.20 USD per drum, gross margin per drum of 4.30 USD, gross margin 8.2 percent. Monthly gross profit is 800 × 4.30 = 3,440 USD. Monthly fixed costs are 22,000 USD (warehouse, two staff, insurance, financing). Monthly P&L: gross profit 3,440 minus fixed 22,000 = minus 18,560 USD. Distributor is hemorrhaging cash. Looks fine on paper because the margin number sounds normal for commodities.

The failure. Distributor lifts price to 56 USD per drum, expecting margin to rise to 14 percent. Three of the five major buyers shop the new price against a competitor at 53.50 USD and switch suppliers. Volume drops to 350 drums per month. New gross profit: 350 × (56 - 48.20) = 2,730 USD. The price increase reduced the margin pool, not expanded it. The fixed cost is still 22,000 USD; the gap is now 19,270 USD per month, worse than before.

The fix. Distributor goes back to the COGS line and renegotiates with the supplier. Factory FOB drops by 1.20 USD per drum on a longer-term contract; freight forwarder agrees to a 0.40 USD per drum lower rate on volume commitment; insurance carrier rebates 0.30 USD per drum on a multi-year policy. New COGS is 46.30 USD. At the original 52.50 sale price, margin is 6.20 USD per drum, gross margin 11.8 percent. Volume returns to 800 drums. New gross profit: 800 × 6.20 = 4,960 USD. Fixed costs reduced by closing one redundant staff position to 19,000 USD. Monthly P&L: 4,960 - 19,000 = minus 14,040 USD. Still negative but improving. To turn cash flow positive, distributor needs to lift volume to roughly 3,065 drums per month at the current margin per unit, or grow into a higher-margin product mix where 25 percent gross margin is plausible.

Frequently asked

What is the difference between gross margin and net margin?

Gross margin is sale price minus cost of goods sold (COGS), divided by sale price. It captures the profitability of the sale itself, before any operating expenses. Net margin is the same but after deducting operating expenses (sales, admin, freight insurance, currency hedging, financing). For a trading business, gross margin runs 8 to 25 percent on commodity chemicals, 25 to 60 percent on speciality. Net margin is typically 2 to 8 percent.

Why do I need to compute breakeven units?

Breakeven units is the volume of sales required to cover all fixed costs (warehouse, salaries, insurance, financing) before any profit accumulates. Below breakeven, the business loses money every month. Above breakeven, every additional unit contributes profit at the gross margin rate. Knowing breakeven sets the minimum order book the business needs to keep the lights on.

My margin looks great on paper but cash flow is bad. Why?

Margin is an accounting measure on the sale; cash flow is the timing of cash in versus cash out. A 25 percent margin business with 90-day payment terms from buyers and 30-day payment terms to suppliers carries a 60-day cash gap on every order. Working capital ties up the margin until payment is collected. The fix is shorter buyer terms (LC at sight, T/T 30 days), longer supplier terms (the supplier 60 days), or working-capital financing that bridges the gap.

How do I price for a target net margin?

Add up COGS, allocate operating expenses per unit (total opex divided by expected units), apply the target net margin on top. Sale price = (COGS + per-unit opex) divided by (1 minus target net margin). This formula gives the sale price needed to land the target net margin after all expenses are absorbed.

What is a healthy net margin for a chemical trading business?

Commodity chemicals: 2 to 4 percent net is the industry average. Speciality chemicals: 5 to 10 percent. Distributors with technical service: 8 to 15 percent. Below 2 percent the business is not earning enough cushion to absorb a single bad batch or a single supplier dispute; above 10 percent the business is either a speciality, a value-added distributor, or pricing into a niche the buyers cannot easily cross-shop.

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