Finding Your Break-Even Point
Your charge-out rate tells you what an hour has to earn. Break-even tells you how many jobs a month you need before the business makes anything at all — and it's the number that makes hiring, buying and quiet months make sense.
Most tradies can tell you what they charge. Far fewer can tell you how much work they need before the business is ahead. That second number is your break-even point, and it's the one that turns vague worry about a slow month into something you can actually plan around. This guide covers what break-even does and doesn't tell you, how to split your costs properly, the calculation itself, and what to do when there's no such thing as an average job.
Doing this job for a living? See job management in ServiceYak.
What break-even actually tells you
Break-even is the point where the money coming in exactly covers the money going out. One job past it, the business starts making something. One job short, you funded the month yourself.
There are two versions of this number and they answer different questions. Our guide to working out your charge-out rate covers the hourly version — what one hour has to earn. This guide covers the volume version: how much work has to come through the door.
The volume version is the more useful of the two for running the business day to day, because it converts into things you can see:
- Whether a quiet month is a problem or a blip — you know exactly how far under you went.
- What a new cost really means. A $600-a-month vehicle payment isn't $600, it's however many extra jobs a month that is.
- Whether you can afford to hire. A second tradesperson raises your fixed costs and your capacity at the same time, and break-even tells you what they have to bill to pay for themselves.
- What a discount costs you. Cutting price cuts contribution, which raises the number of jobs you need — often by more than the extra work the discount wins.
What break-even doesn't tell you is whether the work will turn up. It's a cost calculation, not a forecast. Treat it as the line you have to clear, not a prediction that you will.
Splitting fixed from variable
The whole calculation rests on sorting your costs into two buckets, and this is the step people get wrong.
| Type | Test | Typical examples |
|---|---|---|
| Fixed | You pay it in a month with no work at all | Vehicle finance, insurance, licences, software, phone, yard or storage, accountant, advertising, your own wage |
| Variable | It only exists because a job exists | Materials, subcontractor labour, equipment hire for a job, tip fees, job-specific travel |
Three things trip people up:
- Your own wage is a fixed cost. If you leave it out, break-even means the business survives while you work for nothing. Put in the figure you actually need to live on.
- Employee wages are usually fixed, not variable. You pay a full-time apprentice whether or not there's work on. A subbie you engage per job is variable. Which bucket your labour sits in changes the answer a lot.
- Annual and quarterly costs get divided down. Insurance, registration and licence renewals are fixed costs — convert them to a monthly figure rather than ignoring them for eleven months and panicking in the twelfth.
Add a buffer of five to ten per cent to your fixed total. Something always turns up, and a break-even figure that assumes a perfect month is a figure you'll miss most months.
The calculation
Once your costs are sorted, the arithmetic is one line. What's left of an average job after its own variable costs is called the contribution — the amount that job contributes towards covering your fixed costs.
Fixed costs ÷ contribution per job = jobs needed. Take a business with $6,600 a month of fixed costs, an average job value of $2,400, and $1,200 of materials and subbie labour on a typical job:
| Step | Figure |
|---|---|
| Monthly fixed costs (including your own wage) | $6,600 |
| Average job value | $2,400 |
| Variable cost on that job | $1,200 |
| Contribution per job | $1,200 |
| Fixed costs ÷ contribution | $6,600 ÷ $1,200 |
| Break-even | 5.5 jobs a month |
Five and a half jobs means six, because you can't invoice half a bathroom. In revenue terms it's the same number said differently: contribution is 50% of the job value, so break-even revenue is $6,600 ÷ 0.5 = $13,200 a month.
Now the number does some work. Add a $600 monthly vehicle payment and fixed costs go to $7,200 — break-even moves to six jobs. Drop your prices 10% and contribution falls to $960 while fixed costs stay put, taking break-even to nearly seven jobs for the same money in your pocket.
When there's no such thing as an average job
Plenty of trade businesses do a $400 service call and a $40,000 renovation in the same week, and an average of the two describes neither. You've got three ways around it, in increasing order of effort:
- Use hours instead of jobs. Work out contribution per chargeable hour rather than per job, then divide fixed costs by that. The answer comes out as chargeable hours a month, which for most trades is easier to check against reality anyway.
- Break it down by work type. Calculate contribution separately for your two or three main kinds of work — service calls, installs, project work — and work out what mix clears your fixed costs. This is the version that tells you which work is actually carrying the business.
- Use a contribution percentage. If your margin is reasonably consistent across job sizes, skip job counts entirely and work in revenue: fixed costs divided by your contribution percentage gives you a monthly revenue target.
If you don't know your contribution percentage, that's the more urgent problem. It comes out of costing finished jobs — quoted against actual, materials and labour included — and until you're doing that, every one of these calculations rests on a guess.
Using the number once you have it
Break-even is a line, and what matters is how far above it you're running. That gap is your margin of safety — how much work you could lose before the business stops paying for itself.
In the example above, break-even is 5.5 jobs. If you're doing nine a month, you're running about 39% clear — you could lose more than a third of your work and still cover costs. If you're doing six, you're one cancelled job from a loss, and that's worth knowing before the cancellation rather than after.
- Recalculate whenever a fixed cost changes — a vehicle, an employee, a rent increase, a new insurance premium.
- Recalculate when your pricing changes, because contribution moves with it.
- Track jobs against the line monthly, not annually. A year is too long to find out.
- Know your quiet-season number. If your trade has a seasonal dip, work out how many months you can run below break-even on your reserves — that's the number that decides how much you put aside in the good months.
ServiceYak shows what each finished job actually made against what you quoted, so your contribution figure comes from your own completed work rather than an estimate — which is the difference between a break-even point you can act on and one you hope is about right.
Frequently asked questions
How do I calculate my break-even point?
Add up your monthly fixed costs including your own wage, work out what an average job leaves after its materials and subbie labour, then divide the first by the second. That gives you jobs per month. For $6,600 of fixed costs and $1,200 contribution per job, break-even is 5.5 jobs — so six.
Should I include my own wage in break-even?
Yes. Leave it out and you've calculated the point at which the business survives while you work for free, which isn't a useful number. Put in what you actually need to live on and treat it as a fixed cost like any other.
Is break-even the same as my charge-out rate?
No — they're two views of the same problem. Your charge-out rate is what one hour has to earn to cover costs and margin. Break-even is how many jobs or hours a month you need before the business is ahead. Work out the rate first, then use break-even to sanity-check the volume.
How often should I redo the calculation?
Whenever a fixed cost changes, whenever your pricing changes, and otherwise once a quarter. Vehicle finance, an employee, a rent rise or a new insurance premium all move the line, and the whole point of the number is knowing where the line is right now.