What Is Break-Even Revenue?

Break-even revenue is the amount of sales a business needs to generate for its gross profit to cover its overhead expenses.

At break-even:

Gross Profit = Overhead

The company has covered its direct job costs and overhead, but has not yet generated net operating profit.

Revenue above break-even can begin producing profit — assuming the company’s gross margin remains consistent and additional overhead does not materially increase.

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Why Gross Margin Matters

Suppose your contracting company has:

$150,000 in annual overhead

It would be easy to assume the company needs $150,000 in revenue to cover that overhead.

But that would be incorrect because some of every revenue dollar is used to pay the direct costs of performing the work.

If your company operates at a 35% gross margin, only about $0.35 of every revenue dollar is available as gross profit to cover overhead and ultimately produce profit.

At a 35% gross margin:

$150,000 annual overhead ÷ 35% gross margin = approximately $428,571 in break-even revenue

So the company needs approximately $428,571 in annual revenue just to generate enough gross profit to cover $150,000 of overhead.

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How the Contractor Break-Even Calculator Works

The calculator uses your:

• Annual company overhead
• Average gross margin
• Desired annual profit, if applicable
• Working weeks per year
• Working days per week

It then estimates the revenue required to cover overhead and breaks that revenue target into annual, monthly, weekly and daily amounts.

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Calculate Revenue Needed for a Profit Goal

Breaking even shouldn’t be the ultimate goal of a healthy contracting business.

Suppose the same company has:

$150,000 annual overhead
35% gross margin
$100,000 desired annual profit

The company needs to generate enough gross profit to cover both:

$150,000 overhead + $100,000 profit = $250,000

At a 35% gross margin, that requires approximately:

$714,286 in annual revenue

This gives the owner a much more useful target than simply saying:

“We want to make $100,000.”

The calculator translates the profit goal into the amount of sales the company may actually need to produce.

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Break-Even Revenue vs. Break-Even Job Price

This calculator looks at the entire contracting business, not an individual project.

An individual job still needs to be priced to cover its:

• Labor
• Labor burden
• Materials
• Equipment
• Subcontractors
• Other direct job costs
• Appropriate share of company overhead
• Desired profit

Use the Contractor Job Profit & Margin Calculator and Contractor Markup Calculator for job-level pricing calculations.

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What Gross Margin Should You Enter?

Use your company’s actual historical gross margin whenever possible.

Gross margin is:

Gross Profit ÷ Revenue × 100

For example:

$750,000 revenue
− $487,500 direct job costs
= $262,500 gross profit

$262,500 ÷ $750,000 = 35% gross margin

Avoid choosing a gross-margin percentage simply because another contractor says that’s what their company produces.

Different trades and companies can have very different labor structures, material costs, subcontractor usage, equipment expenses and overhead.

Your own numbers are the best starting point.

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Break-Even Is Not the Goal

Break-even is an important number to know, but it shouldn’t be confused with success.

At break-even, the business has essentially generated enough gross profit to cover its overhead.

There is no meaningful operating profit left over.

Knowing your break-even revenue helps establish the minimum production level your company needs to support.

From there, you can establish revenue targets that include the profit necessary to compensate ownership, reinvest in the company, build reserves and grow the business.

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Contractor Break-Even Calculator FAQ

How do I calculate break-even revenue for a contracting business?

Divide annual overhead by the company’s gross margin expressed as a decimal. For example, $150,000 in overhead divided by a 35% gross margin equals approximately $428,571 in break-even annual revenue.

Does break-even revenue include labor and materials?

Direct job costs such as field labor and materials are reflected in the gross margin used by the calculator. Company overhead is then covered by the gross profit remaining after those direct costs.

Is owner salary included in overhead?

It depends on how your company accounts for owner compensation. The important thing is to classify expenses consistently and avoid accidentally excluding or double-counting costs.

Is gross margin the same as markup?

No. Gross margin measures gross profit as a percentage of selling price. Markup measures the amount added to cost. A 50% markup does not produce a 50% gross margin.

Why is my break-even revenue so much higher than my overhead?

Because only the gross-profit portion of each revenue dollar is available to cover overhead. The remainder pays the direct costs required to perform the work.

Can I use this calculator to set an annual revenue goal?

Yes. Enter a desired annual profit and the calculator will estimate the revenue needed to cover both company overhead and that profit goal at the gross margin entered.

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