How To Calculate The True Break-Even Point For Every Project Before You Quote A Price

A common mistake that is made by builders when pricing a larger than normal project is to reduce the margin percentage after looking at the gross profit as a dollar figure.

The thinking behind this is that a larger amount of revenue will lead to a larger gross profit, which translates to more net profit.

As a result, it can become tempting to reduce the gross margin percentage being applied to larger projects either in an attempt to ensure the job is won or out of a sense of guilt after seeing the dollar amount of gross profit.

However, what tends to get overlooked is the increased amount of fixed expenses that must be applied to larger jobs.

In order to help builders understand their true break-even point for every project they sign, which means understanding their fixed expenses as opposed to only knowing what their break-even point is just for their materials and labour, we developed a calculator that could be used for every project that was being priced.

If you do not have access to this calculator then a general rule of thumb is to add 17.5% to the cost of sale in order to cover all the fixed expenses for the business, including a market salary for the business owners.

This is your true break-even point, and in order to make a net profit that will enable you to grow your business safely and securely, you’ll need to add a lot more than just 17.5%.