I had a contractor tell me his business was doing great. Revenue was up 30% year over year. I asked what his break-even was. He didn't know. I asked what his overhead was. He had a rough guess. I asked what his average net margin was. More silence. Revenue being up means nothing by itself. You need context.
Fixed vs. Variable Costs
Fixed costs are what you pay whether you do any jobs or not. Insurance, vehicle payments, shop rent, phone bill, software subscriptions, your office manager's salary. Add them all up. That's your monthly fixed cost baseline.
Variable costs move with revenue. Materials on jobs, fuel for those specific jobs, subcontractor costs tied to specific projects. These don't factor into break-even the same way because they scale with jobs. What you need to cover with revenue is your fixed costs plus your own labor cost plus variable costs on any given job.
The Break-Even Calculation
Break-even revenue equals fixed monthly costs divided by your gross margin percentage. If your fixed costs are $15,000 per month and your gross margin (revenue minus direct job costs) is 45%, your break-even is $15,000 divided by 0.45, which is $33,333 per month.
That means every dollar of revenue below $33,333 in a given month results in a loss. Every dollar above it contributes to profit. Knowing that number changes how you look at a slow week versus a panic about whether to make payroll.
What This Number Tells You
It tells you how many jobs you need per month at your average ticket to stay profitable. If your average job is $450 and your break-even is $33,333, you need at least 74 jobs per month to not lose money. How many can your team actually do in a month? Does that match? If it doesn't, something has to change: average ticket, job volume, overhead costs, or margins.
Run this calculation once a year at minimum. When you add a truck, hire a tech, or take on a new shop space, run it again. Your break-even moves every time your fixed costs move. Know what it is so you can plan around it.
Profit Above Break-Even
Once you know your break-even, you can set a profit target. If you want 15% net profit on $500,000 in revenue, you need $75,000 above your break-even. Is your pricing and volume getting you there? These numbers connect. They're supposed to connect. That's how a business works on paper. Whether it works in practice depends on whether you're watching the numbers.
Put this into practice with WerkOps
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Written by
Dina Good
Founder, WerkOps
Dina grew up in the trades. Her father was a contractor, then a building inspector, and the job site was her classroom long before any formal one was. She went on to own her own contracting company, which is where she first felt the pain of running a skilled trade business on bad software and worse spreadsheets. A love of data pulled her into programming, and the two worlds eventually collided into WerkOps - software built by someone who has actually been on the truck.