How to Find Your Break-Even Point

Follow this formula to determine where your expenses end and your profit begins.

A break-even analysis determines when your expenses, both fixed and variable, have been met and the company is making a profit. The sooner in the year you reach that point, the more successful the company has become. The break-even point is derived by dividing the fixed expenses by the contribution margin (the amount of profit per job that's available to pay toward fixed expenses). Here's an example:

  • ABC Remodeling has annual fixed expenses totaling $100,000.

  • The average contract amount is $15,000.

  • The average margin on projects is 28 percent.

First, figure the average dollar contribution margin per project:
$15,000 x .28 = $4,200

Then figure the break-even point:
$100,000 ÷ $4,200 = 24 contracts required

ABC Remodeling therefore must complete 24 jobs at an average sales price of $15,000 and a minimum margin of 28 percent to break even for the year.

If the average number of jobs that must be completed is unreasonably high, you must take steps to change that, Clay stresses. The options include raising your margin — which many remodelers can do but fear doing — and decreasing the variable cost of the jobs. On the other side, you can decrease your fixed costs by cutting back on office expenses or staff — remembering that some cuts may affect your service abilities, affecting customer satisfaction and future sales.

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