There’s one number that tells you whether a month was actually good or just busy: your break-even point — the revenue where the business has covered every cost and starts making money. Most contractors can quote their truck payment and their best customer’s name from memory but not this number, which means every pricing decision, every slow-season panic, and every “can I afford a second crew?” conversation is happening without the one figure that anchors all of them.
The good news is that break-even is the simplest piece of business math you’ll ever do — one division. This guide walks through it with numbers you can check by hand, then shows what the answer changes. When you want to run your own, the free Contractor Break-Even Calculator does it instantly.
The two kinds of costs, and why the split matters
Fixed costs arrive whether you sell anything or not: shop rent, vehicle payments and insurance, general liability, software subscriptions, office salaries, your own base draw, phone, marketing retainers. Add them up for a month and that’s the nut the business has to crack before anyone profits.
Variable costs scale with the work: materials, field labor on jobs, subcontractors, fuel burned getting to the site, permits, disposal fees. No jobs, no variable costs.
Some items straddle the line — a fuel card has a base level even in a slow month — and precision matters less than consistency. Put each cost in one bucket, use the same split every time, and the math works.
The formula
Every job’s revenue splits between its variable costs and what’s left over — the contribution margin, the slice that pays fixed costs and then becomes profit. So:
Break-even revenue = fixed costs ÷ contribution margin %
where contribution margin % = 1 − (variable costs as a share of revenue).
Here’s the whole thing worked once. This is an illustrative example with round numbers, not a benchmark — your costs and margins will differ, and the point is to run yours.
Say a two-crew plumbing shop carries $18,000 a month in fixed costs. Looking at recent jobs, variable costs — materials, field labor, fuel, permits — run about 60% of revenue, so 40 cents of every revenue dollar is contribution margin.
$18,000 ÷ 0.40 = $45,000 a month to break even. Below that, the shop loses money no matter how hard everyone worked. Above it, each additional dollar of revenue drops 40 cents to profit. If the shop wants $8,000 of monthly profit, the same formula gives the target: ($18,000 + $8,000) ÷ 0.40 = $65,000.
What the number changes
It sets your pricing floor. A price that doesn’t carry its share of fixed costs is a donation. If you’re quoting work at a contribution margin that can’t cover the nut at realistic volume, no amount of hustle fixes it — the markup vs. margin guide covers the pricing math side of this.
It reframes the slow season. Knowing that January only needs $45,000 — not “as much as possible” — turns vague dread into a target you can plan toward: how many service calls, how many installs, booked by when.
It prices growth decisions. A second crew adds fixed costs (truck, insurance, base wages) the moment you commit, and adds revenue only when the calendar fills. Running the formula with the new fixed-cost line tells you exactly how much extra monthly revenue the crew has to bring before it stops costing you money — before you’ve signed anything.
It makes discounting honest. Cutting price doesn’t cut your variable costs, so every discount comes straight out of contribution margin. At a 40% margin, a 10% discount means the job contributes a quarter less toward the nut — that’s the real cost of “winning” the bid.
What a discount really does to the number
Because a discount comes entirely out of contribution margin, it doesn’t just shave profit — it raises the revenue you need to break even at all. Same shop, same $18,000 of monthly fixed costs, same 60-cent variable cost on every list dollar:
| Discount given | Contribution margin | Revenue needed to break even |
|---|---|---|
| None | 40.0% | $45,000 |
| 5% | 36.8% | $48,857 |
| 10% | 33.3% | $54,000 |
| 15% | 29.4% | $61,200 |
| 20% | 25.0% | $72,000 |
Worked from the illustrative figures above, not an industry benchmark. Arithmetic checked September 8, 2026.
A 10% discount doesn’t cost you 10% — it adds $9,000 a month to the revenue you must produce just to stand still. Knock 20% off to win work and you have to sell $72,000 where $45,000 used to do, a 60% increase in volume to end up in exactly the same place. That is the honest price of “sharpening the pencil,” and it is worth knowing before the conversation, not after.
The margin you hand away when the customer buys the materials
There is one contribution-margin leak that doesn’t show up as a discount at all, because it never appears on the invoice: letting the homeowner buy their own materials. It feels generous, and it removes a whole line of contribution from the job.
Take a job with $4,000 of materials that you would normally supply at a 50% markup. Billed through you, that line adds $2,000 of contribution — money that covers your time sourcing, hauling, warrantying and replacing the wrong part on a Saturday. Hand the buying to the customer and the labor stays the same while that $2,000 disappears entirely. Against $18,000 of monthly fixed costs, that single decision gives away 11% of a month’s nut; do it on nine jobs and you have worked a full month of overhead for free.
There’s a second cost that isn’t financial. When the customer supplies the material, you inherit the schedule risk and the warranty argument without the margin that pays for either. If you do allow it, price the labor accordingly rather than pretending the job got cheaper to run.
The mistakes to avoid
Leaving your own pay out of fixed costs. If the business only breaks even when you work for free, it isn’t breaking even.
Using wages instead of burdened labor in variable costs. Field labor costs far more than the paycheck — payroll taxes, workers’ comp, and non-billable time ride along. The True Hourly Rate Calculator gives you the loaded number to use.
Computing it once and framing it. Fixed costs creep — insurance renewals, a new software seat, a raise. Re-run the number quarterly, or any time a big fixed cost changes.
Confusing break-even with a goal. Break-even is the floor. The same formula with profit added on top is the actual target — and that’s the version worth putting on the whiteboard.
Run yours
Pull a recent month’s numbers, split them into fixed and variable, and put them into the free Contractor Break-Even Calculator — it returns your break-even revenue and the version with your profit goal built in. If you want the supporting worksheets — job costing, estimating, invoice templates — the Contractor Business Template Kit is a free download: enter your email at checkout and it’s yours.
The bottom line
Break-even is one division: fixed costs over contribution margin. It takes an evening with your books to compute and it quietly informs every decision you’ll make this year — what to charge, when to worry, when to hire. Busy and profitable are not the same thing, and this is the number that tells you which one you are.
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Michael is the founder of Augmented Trades, an independent site that compares AI and software tools for trade contractors on published pricing, contracts, and real feature limits. Tools are recommended on fit for your shop — affiliate partnerships never decide coverage.