Glossary
Break-even point
Also called: break-even revenue · break-even
The break-even point is the revenue a business has to bring in to cover all of its costs, with nothing left over as profit.
It comes from two numbers: overhead — the costs you pay regardless of how much work you do — and gross margin, the share of each sales dollar left after the direct cost of the work. Divide monthly overhead by gross margin and you have the monthly revenue needed just to stand still.
Expressed per working day or per truck, it becomes a target the whole team can understand. It also shows why a small fall in margin hurts so much: the lower the margin, the more revenue every dollar of overhead needs.
Why it matters to a contractor
Every month starts in a hole the size of your overhead. Knowing your break-even tells you, early in the month, whether you are going to climb out of it.
Work it out on your numbers
See also