What does break-even actually mean?
Break-even is the point where your money in equals your money out. Below it you are losing money every month. Above it you finally start keeping some. It is the single most important number most owners have never calculated.
What numbers do you need first?
You only need three things to get a usable break-even number. Pull them from your real records, not from memory.
- Fixed costs: rent, insurance, base payroll, loan payments, software, the bills you pay no matter what
- Variable costs: materials, subcontractors, and the labor tied directly to doing the work
- Gross margin: sales minus variable costs, written as a percentage of sales
How does the math work?
The formula is fixed costs divided by gross margin percentage. Say your overhead is $20,000 a month and you keep 40 cents of gross margin on every dollar of sales. Your break-even is $20,000 divided by 0.40, which is $50,000 in monthly sales just to get to zero. Everything above that starts to become profit.
What do you do with the number once you have it?
Once you know your break-even, every decision gets clearer. You can see how many jobs you need, whether a price is high enough, and how much a new hire or a new truck really costs you in sales. It turns guessing into managing.