If you’re running a construction business, you’ve probably asked yourself, “When will my construction business break even?” It’s a question every business owner wonders about, and the answer isn’t as simple as picking a date on the calendar.
Understanding your break-even point is crucial because it’s the moment your revenue covers all your costs, and from that point on, every dollar you earn contributes to profit.
Let’s walk through how to get to that break-even point for your business and what practical steps to reach it faster.
How To Calculate Your Break-Even Point
The break-even point is when your total revenue equals your total costs. There’s no profit, no loss. It’s the financial milestone that tells you how much you need to earn just to cover your expenses.
To calculate your break-even point, you need to understand your costs:
- Fixed Costs: These are expenses that don’t change, like office rent, salaries, insurance, and software subscriptions.
- Variable Costs: These fluctuate with your workload, such as materials, subcontractor fees, and hourly labor.
The formula to find your break-even point in sales dollars is:
Break-even Sales = Fixed Costs ÷ (1 – Variable Costs ÷ Sales)
This tells you how much revenue you need to generate to cover both fixed and variable costs.
For example, if your fixed costs are $20,000 per month and your variable costs are 60% of your sales, the calculation would be:
Break-Even Sales = $20,000 ÷ (1 – 0.60) = $50,000
This means you need to generate $50,000 in sales each month to break even.
Knowing your break-even point helps you make informed decisions about pricing, bidding, and growth. Otherwise, you might be underpricing your services, overextending your resources, or taking on projects that don’t contribute to your bottom line.
Getting To Break-Even Faster
Now that you understand how to calculate your break-even point, the next step is turning that knowledge into action. Here are some practical steps you can take:
Review Your Pricing
Take a hard look at how you price your jobs. Are you consistently covering both fixed and variable costs while leaving room for profit? Consider setting a target gross margin for each job type and stick to it.
For example, if a construction job costs $30,000 in materials and labor, aim to charge enough to cover that $30,000 plus your portion of overhead, and add a margin for profit.
Consistency is key. Avoid the trap of bidding low just to win a job, as that often pushes your business further from breaking even.
Track Your Costs Like A Hawk
Start logging costs in real time for every project. Use spreadsheets, accounting software, or even simple checklists to track materials, subcontractor fees, and labor hours. Compare each job’s actual costs against your estimates.
This feedback loop lets you spot where you’re overspending, underestimating, or losing efficiency, so you can adjust before it becomes a problem.
Increase Sales Strategically
Breaking even often means taking on enough work, but not just any work. Focus on projects that give you healthy margins and align with your expertise.
Look for ways to add complementary services, like maintenance contracts or inspections, which can provide a steadier stream of income. Expanding into new neighborhoods or commercial accounts can also help balance slower seasonal months.
Improve Cash Flow Management
Even healthy businesses can run into trouble if cash flow is tight. Make deposits a standard practice for all jobs, and structure milestone payments for larger projects. Consider offering incentives for clients who pay early.
Keep a close eye on accounts receivable and follow up immediately on overdue invoices. The faster you turn jobs into cash, the sooner you’ll reach break-even.
Control Job Costs And Scope Creep
One of the biggest threats to profitability is uncontrolled costs and scope creep. Standardize your estimates and job templates so every project starts with a clear plan. Require written approvals for change orders before additional work begins. Over time, use historical data from completed jobs to refine your pricing and estimates so they more accurately reflect reality.
Monitor Progress And Adjust
Set up a simple dashboard that tracks your revenue, job costs, and contribution margin each month. Check it weekly if possible. If you notice trends moving away from break-even, act immediately. Adjust your pricing, reduce costs, or push for faster payment. The earlier you respond, the less impact a problem will have on your bottom line.
Need Help Navigating The Numbers?
At Atlas Accounting Group, we specialize in helping construction businesses like yours understand and manage their finances. Whether it’s enhancing job costing systems, analyzing your break-even point, or planning for growth, we’re here to help you make informed decisions that lead to profitability.
Reach out to us today and let’s work together to build a solid financial foundation for your business.