Break-even point explained, with a worked example

What is a break-even point?

It is the smallest number of jobs that pays your fixed costs. Fixed costs are the ones you pay whether or not you work, such as insurance, a van payment or software. Variable costs change with each job, such as materials.

How do I calculate break-even?

Subtract the variable cost of one job from its price. That is what each job contributes. Then divide your fixed costs by that contribution and round up to a whole job.

Break-even jobs = fixed costs ÷ (price − variable cost per job).

Break-even for a small trades business: worked example

Example figures only. Fixed costs are $2,000 a month. One job in this example is priced at $800 and uses $300 of materials.

Contribution per job: $800 − $300 = $500. Break-even: $2,000 ÷ $500 = 4 jobs a month.

If fixed costs were $2,100, the answer is $2,100 ÷ $500 = 4.2. You cannot do 0.2 of a job, so you round up to 5 jobs.

What if my price is lower than my variable cost?

Then there is no break-even. Every job adds nothing or loses money, so fixed costs are never covered. Raise the price or cut the variable cost first.

Keep the periods the same

Use fixed costs for one month with a monthly target, or for one year with a yearly one. If you mix them, the answer will be wrong.

Try it with your own figures

Type your fixed costs, your price and your variable cost, and name what you sell, such as jobs. The calculator gives the break-even number. It does not predict how many jobs you will win. Sales tax is not part of this; leave out Tax A and Tax B from your price.