What break-even means for a contractor
Your break-even point is the revenue where gross profit exactly pays your overhead. Below it, the business loses money even if every job looks profitable on its own. Above it, each additional dollar of gross profit is profit for the business.
The math is short: break-even revenue = overhead ÷ gross margin. With $25,000 of monthly overhead and a 30% gross margin, you need about $83,333 of revenue a month, or $1 million a year, just to break even.
Two levers move it
- Overhead. Every $1,000 a month of new overhead (a truck payment, an office hire) needs more revenue to cover it. At a 30% margin, that’s $3,333 of extra monthly sales.
- Gross margin. Small pricing and cost changes matter a lot. Raising your margin from 30% to 33% drops break-even from $83,333 to about $75,758 a month at the same overhead.
That’s why we look at job-level margins and overhead together, not just total sales.
Plan for slow seasons
Overhead keeps running in January, but revenue often doesn’t. If you do most of your work in eight months, those months have to earn enough to cover twelve months of overhead. Multiply monthly overhead by 12, divide by your margin, and compare that with what your busy season realistically brings in. A monthly cash outlook helps you see the gap coming.
Getting the inputs right
- Use monthly averages. Annual insurance or registrations should be divided by 12.
- Include owner pay if it isn’t already in job costs or office payroll. A business that only breaks even before paying the owner isn’t breaking even.
- Use your actual gross margin from recent months, not your estimating target. If you don’t trust that number, your books may need attention first.
Common questions
What counts as overhead?
Costs that continue whether or not you have jobs running: office rent, office and admin payroll, owner pay, insurance, vehicle and equipment payments, software, phones, marketing and professional fees. Materials, field labor, subcontractors and job-specific rentals are direct job costs, not overhead.
Where do I find my gross margin?
On a profit and loss statement that separates cost of goods sold (direct job costs) from overhead. Gross margin is gross profit divided by revenue. If your books mix job costs and overhead together, the number won’t be reliable.
Does break-even include loan principal?
Not in this simple version. Loan principal payments use cash but aren’t an expense on the profit and loss statement. If you want a cash break-even, add your monthly principal payments to overhead.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.