That's the idea. But the "cost" of an item will depend on the number sold. Let's assume that a company's yearly costs are $1 million. They will sell one widget

That's the idea. But the "cost" of an item will depend on the number sold. Let's assume that a company's yearly costs are $1 million. They will sell one widget a year. That widget will now "cost" more than $1 million if they want to be in the black. But if they will sell 1 million widgets, now one widget will "cost" more than $1. (There's a lot of slop here, as the marginal costs will have gone up since you greatly increased production.) Basically, you have fixed costs, and when you sell many of a thing, you build in the fixed costs, along with the marginal unit cost, into the final price the consumer pays. The problem comes when the size of your market is such that the cost you would need to stay in the black is well more than any reasonable consumer would pay. In Pebble's situation, there surely would be a one-watch cost that would keep them in the black, but that number could be in the thousands or tens-of-thousands. That's when you, as the CEO, start to think about shutting down the business, because that unit cost would be absurd. I think you may be thinking of the "cost" of the watch as the marginal cost it takes to pump out one more from a production line. But you also have to take into account all of the fixed costs (software developers, administrators, server infrastructure, getting the production line ready, etc).