BuildWellBreak-even point
The break-even point is the amount of revenue at which a business covers all its costs and makes neither a profit nor a loss.
For a contracting business, break-even revenue is annual overhead divided by gross margin. If overhead is $120,000 a year and jobs average a 30% gross margin, you need $400,000 in revenue to break even. Every dollar of gross profit beyond that is net profit.
You can run the same math monthly: monthly overhead divided by gross margin is the revenue you need each month. That gives you a sales target, and it shows what a slow month costs.
There are two levers. Lower overhead brings the break-even point down. A higher gross margin brings it down too, often faster: in the example above, moving from a 30% to a 35% margin drops the break-even point to about $343,000.
Break-even math also helps with decisions such as adding a truck or an employee. Add the new fixed cost to overhead and see how much more work you would need to sell to pay for it.
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