What a Contractor Has to Sell Before the Business Earns a Profit
Break-even is not the point where you start getting paid. Owner compensation sits inside the cost structure ahead of net profit. This is the sales volume at which gross profit finally equals the overhead budget.
The assumptions
This model assumes
- The same solo business as the published hourly model, no employees
- $100,000 gross owner compensation target, loaded to $107,692 of modeled cost
- 2,080 compensated hours a year, a model input, of which 1,332 are billable
- $56,000 of non-owner overhead across twelve named lines
- Materials and subcontractors at 33% of revenue, passed through at cost, held at that share as volume changes
- The overhead budget held at $94,727.70 across the volumes discussed
- 5% net profit target at plan, $13,200.97 on $264,019.35
The model, step by step
Not "when have I covered my expenses," because your own compensation is one of them and it is recovered through the pricing structure throughout, ahead of net profit.
The question is narrower: at the rate this business turns sales into gross profit, how much does it have to sell for that gross profit to equal the overhead budget?
Of the $264,019.35 this business plans to bill, $156,090.69 goes back out as job cost: materials, subcontractors, and the owner's own hours charged into jobs.
Forty-one cents of every dollar billed is available to pay overhead, and after that, to be profit.
Two lines make up the budget the gross profit has to cover.
That second line is the modeled compensation cost for the 748 hours a year that never reach an invoice, and it is 40.9% of the overhead budget. Where the $38,727.70 comes from works through why it must be recovered exactly once.
Divide the overhead budget by the gross margin ratio.
Dollars are abstract; hours are on your calendar. Each billable hour bills $132.80 and carries $51.78 of the owner's own job-cost labor, leaving $81.02 toward overhead.
So of the 1,332 planned hours, 1,169 are the break-even equivalent and about 164 sit above it, which is 6.4 average billable weeks of volume. That is a statement about volume, not about the calendar: nothing here says which hours those are.
This is the planned annual allocation per billable hour: $13,200.97 of profit and $94,727.70 of overhead spread across 1,332 hours. It says what each hour is budgeted to carry, not when profit is earned.
| Component | Per billable hour | Annual |
|---|---|---|
| Owner labor charged into jobs | $51.78 | $68,964.30 |
| Overhead | $71.12 | $94,727.70 |
| Net profit | $9.91 | $13,200.97 |
| Billed | $132.80 | $176,892.97 |
Ninety-two and a half cents of every labor dollar is spoken for before any net profit exists. This is about the $132.80 rate, not about total revenue: the business also bills $87,126.39 of materials and subcontractors, which carry no overhead or profit at all.
It does not. At the planned ratios, volume equal to 1,169 billable hours produces no net profit at all. The whole modeled profit comes from the 12.23% of planned sales above that threshold.
A shortfall the size of the cushion does not shrink the profit
| Planned revenue | $264,019.35 |
| Break-even volume | $231,726.63 |
| Cushion above break-even | $32,292.73 |
| Modeled net profit | $13,200.97 |
| Sell only the break-even volume and net profit is | $0.00 |
Holding the same $94,727.70 overhead budget, volume above the threshold contributes $81.02 an hour rather than $9.91, because the budget has already been met. That holds only while the budget itself does not move with the extra volume; overhead is not necessarily fixed.
What it means
Know the number without rebuilding the spreadsheet
Clamp tracks overhead by category and job costs against each job, so the gross margin and the overhead budget this calculation needs come out of the work you already logged rather than an annual reconstruction.
Find your own gross margin first: revenue less job costs, as a percentage. Then total your overhead budget honestly, including the compensation for hours that never reach an invoice. Divide the second by the first and you have the volume your business has to sell before it earns anything. To check that volume against real work, put a job through the estimator and see what it costs before markup.
Sources & provenance
- The Hourly Rate a Solo Contractor Needs to Make $100,000 Clamp (owner-supplied)
- Break-even point U.S. Small Business Administration (official)