The formula: break-even revenue
Break-even is the volume at which gross profit exactly covers fixed overhead, so the business neither makes nor loses money. Gross profit is revenue less job costs (labor, materials, equipment and subcontracts charged to jobs). Fixed overhead is what it costs to run the business whatever the volume.
- Break-even revenue = fixed overhead ÷ gross margin, with the margin as a decimal of revenue.
- Margin = markup ÷ (1 + markup) when gross profit is given as a markup on job cost.
- Revenue for a target profit = (fixed overhead + target profit) ÷ gross margin.
- Profit at a given revenue = revenue × gross margin − fixed overhead.
Worked example 1: margin given
Yearly overhead is $360,000 and the gross margin is 20%. These are invented study numbers and the calculator's starting example.
- Break-even revenue = 360,000 ÷ 0.20 = $1,800,000.
- Per month = 1,800,000 ÷ 12 = $150,000.
- Job costs at break-even = 1,800,000 − 360,000 = $1,440,000.
Check: 20% of 1,800,000 is 360,000, exactly the overhead.
Worked example 2: markup given, with a target and a forecast
Yearly overhead is $240,000, jobs are priced at a 25% markup on job cost, the owner wants a $60,000 profit, and the forecast is $1,350,000 of revenue.
- Margin = 0.25 ÷ 1.25 = 20%.
- Break-even revenue = 240,000 ÷ 0.20 = $1,200,000.
- Revenue for the target = (240,000 + 60,000) ÷ 0.20 = $1,500,000.
- At the forecast: gross profit = 1,350,000 × 0.20 = $270,000, and profit = 270,000 − 240,000 = $30,000.
- Margin of safety = 1,350,000 − 1,200,000 = $150,000, which is 11.11% of the forecast.
Check the profit another way: revenue above break-even earns the full margin, so 150,000 × 0.20 = $30,000. The trap: dividing by the 25% markup gives 240,000 ÷ 0.25 = $960,000, which is $240,000 short of break-even. These are original arithmetic examples, not exam questions. The job costing and overhead guide separates job costs from overhead.
Break-even questions
How do you calculate break-even revenue?
Divide fixed overhead by the gross margin, the share of each revenue dollar left after job costs. With $360,000 of yearly overhead and a 20% gross margin, break-even revenue is 360,000 ÷ 0.20 = $1,800,000. Check: 20% of 1,800,000 is 360,000.
What if I know my markup, not my margin?
Convert it first: margin = markup ÷ (1 + markup). A 25% markup on job cost is a 20% margin, so $240,000 of overhead needs 240,000 ÷ 0.20 = $1,200,000 of revenue. Dividing by 0.25 instead gives $960,000, which is $240,000 too low.
How much revenue do I need to make a profit?
Add the profit you want to the overhead and divide by the same margin. In the second worked example, a $60,000 profit needs (240,000 + 60,000) ÷ 0.20 = $1,500,000 of revenue.
Where is this on the NASCLA exam?
The Bid Bond course teaches break-even in its Procurement and Contracting Requirements lesson. That is the largest of the twelve subject areas on the NASCLA outline, with 31 of the 115 scored questions.
See the NASCLA exam outline for all twelve subject areas and their question counts.