Overhead and Break-Even Calculator for Contractors

How it works

Overhead is what the business costs you whether or not you have a job going: the shop, the trucks that aren't billed to a project, insurance, software, the phone, and your own salary. Job cost is the opposite — lumber, crew hours, subs — the money a specific job makes you spend. Keeping the two apart is what makes the rest of this arithmetic work.

Overhead rate

overhead rate = annual overhead ÷ annual revenue

Every dollar you bill has to carry a slice of the year's overhead. $112,000 of overhead on $560,000 of revenue is 20 cents of every dollar — before the job has earned you anything.

The margin your bids need

required gross margin = overhead rate + target net profit

Gross margin pays for overhead first, and what survives is net profit. To keep 10% net on top of 20% overhead, every job needs a 30% gross margin — which is a 42.9% markup on cost, not 30%. That is the number to put into the job cost calculator.

Break-even

break-even revenue = annual overhead ÷ gross margin

Break-even is the revenue at which your gross profit exactly covers overhead: below it the business loses money, above it the margin starts becoming yours. At a 30% margin, $112,000 of overhead breaks even at $373,333 a year, or $31,111 a month — a useful floor to check a slow quarter against.

One warning: a percentage borrowed from a forum is someone else's overhead. A one-truck remodeler and a company with a yard and an office have nothing in common here. Add up your own year; the whole calculation is only as honest as the six lines above.