Minimum Profitable Price
Minimum profitable price is a planning floor that covers a stated cost boundary and delivers a specified positive profit target.
What is Minimum Profitable Price?
The phrase is not a standardized accounting measure. Its useful meaning depends on a cost definition, a sales-volume assumption and a profit target. Without those, one person may mean “above product cost” while another means “after overhead and fees.”
Break-even price covers the modeled costs with zero profit. A minimum profitable price adds a positive requirement, such as $5 per order or a stated margin. If no target is specified, there is no unique minimum beyond prices just above break-even.
Target-price floor = (Dollar costs + Fixed-cost allocation + Target profit) ÷ (1 − Percentage fee)
This version uses a currency profit target per unit. It assumes the fee applies to price, all costs are counted once and the fee rate is below 100%. It is not the equation for a target profit percentage.
A $5 contribution to profit after the allocation
A kitchen accessory has $24 of dollar costs, $3 of allocated overhead per sale and a target of $5 profit. A fee consumes 4% of price. The modeled floor is ($24 + $3 + $5) ÷ 0.96 = $33.333…, rounded up to $33.34. The target is measured before income tax in this example.
How to interpret it
This floor is a rule for a scenario, not evidence that customers will pay the amount. If the market will not support it, the business has a cost, target or product-positioning problem rather than an arithmetic justification for the price.
A fixed-cost allocation depends on expected volume. Selling fewer units can leave the business short of its overall target even if each sale meets the originally allocated floor. Review the volume assumption when using a per-order number.
Different decisions can justify different boundaries. An incremental clearance sale may be evaluated against avoidable costs, while a normal ongoing price needs to support the broader business. Preserve those labels rather than letting the lower threshold become a permanent catalogue rule.
Discounts and expected return losses can change the realized result. Apply the floor to the amount actually earned, with a coherent treatment of variable losses and fees.
Common mistakes
Using the term without a profit target
A price that is profitable by one cent and a price that meets a 15% target are different floors. State the requirement.
Treating allocation as a cash payment caused by the sale
Allocated overhead supports planning but may not be incremental. Distinguish cost recovery from the immediate cost of one extra order.