Know Your Overhead and Break-Even

The Monument / Business Fundamentals: Module 1, Lesson 2

A lot of contractors are not broke because they are bad at the trade. They can build. They can fix. They can sell jobs.

The problem is simpler than that. The price covers the labor and the material, but it does not cover the company wrapped around the job.

One contractor channel put the whole disease in one video title: "Why You're Busy, Booked Out… and Still Not Making Money." That is this lesson. By the end of it, you will know two numbers most contractors never learn: what it costs to keep your company alive each month, and how much you have to sell before you make your first dollar of profit.

Revenue is not profit. A full calendar is not proof you are making money.

Start by tracking everything

The way I handle it is not fancy. Track everything from day one in a bookkeeping app. I use Zoho. QuickBooks can do the same thing.

Connect your bank and your cards. Buy everything on the cards. Send every invoice through the app. If money comes in or goes out, it needs to show up there.

Do that, and the app builds you a report called the P&L, short for profit and loss. It is just a list: money in on top, money out below. You do not have to make it. You just have to look at it.

The three buckets

Every dollar in your business lands in one of three buckets.

Direct job cost is what exists because the job exists. Labor, material, subs, equipment, permits, supervision, disposal, and anything else tied to that one job.

Overhead is what keeps the company alive whether that job happens or not. Insurance, trucks, phones, software, bookkeeping, admin, marketing, your own pay, non-billable time, tools, training, callbacks, tax reserve.

Profit is not whatever is left over. It is something you price for on purpose.

The price the customer pays has to cover all three. That is the whole lesson in one sentence. The rest is learning to see your own numbers.

Find your overhead in five minutes

Open the P&L. Look at the section called operating expenses. That is your overhead.

Take the last 12 months of it and divide by 12. That is your monthly overhead: what it costs to keep the doors open before you swing a hammer.

If you are brand new and have no history yet, estimate the year as honestly as you can, then replace the estimate with real numbers as they come in.

Most contractors have never done this, and the number surprises them. Todd Dawalt, who coaches construction business owners, tells it straight about one of his clients:

"They were shocked because their overhead costs were 35% of revenue. A good benchmark for a construction business is overhead should be around 10% of revenue."

You cannot fix a number you have never looked at.

The break-even math, once

One more piece and you can do the math: gross margin. That is the share of each dollar you keep after paying the direct job costs. If a $10,000 job costs you $6,000 in labor and material, you kept $4,000. Your gross margin is 40%.

Now the formula:

Monthly overhead ÷ gross margin = the sales you need each month just to break even.

Say your P&L shows $20,000 a month in overhead, and your gross margin is 40%. Then $20,000 ÷ 0.40 = $50,000. You need fifty thousand dollars in monthly sales before you have made a single dollar of profit.

That is not winning. That is survival. Profit starts after that line, and only if you priced for it.

Three schools of thought

Everybody teaching contractor money lands in one of three camps. Each one is right about something. Here is what they say, and where I stand.

Camp 1: Price from your own numbers

This camp says stop copying the guy across town. Your markup has to come from your overhead, your pay, your job costs, your risk, and your profit target. Michael Stone, who wrote the book a lot of remodelers price from, has spent years hammering the same two points: there is no industry-standard markup, and markup is not the same thing as margin. (That difference is a money-loser all by itself. It is the next lesson in this series.)

This is where I start. But I add one piece: company-specific markup plus goal profit. What do I need to cover the costs, and what do I actually want to make?

Price the job in this order:

1. Real job cost.
2. Its share of overhead.
3. Goal profit.
4. A 10 to 15% buffer.

That buffer is not greed. It is life. Something always happens. People do not hire me only to swing the hammer. They hire me to make sure the job gets done right, even when the job fights back.

The strength of this camp: a new contractor can use it tomorrow. The weak spot: an average markup can make you lazy. A small repair, a remodel, a risky exterior job, and a long project should not all carry the same weight.

So here is my capacity rule, with real numbers. Say your overhead is $240,000 a year and your goal profit is $120,000. A job that eats three months takes a quarter of your year. So it has to carry a quarter of each: $60,000 of overhead and $30,000 of profit, on top of its own costs. Before you sign it, not after.

One builder-software channel, JobTread, framed the same idea by the day:

"A building company that has annual fixed expenses of, say, $900,000 a year, they would need to apply $3,750 per day across all their jobs in order to simply break even."

Every day your company exists costs money. Big jobs use more days, so they carry more of the bill.

Camp 2: Check the job after it's done

This camp says the estimate is only a guess until the job is costed. Compare what you estimated against what it really cost. The finance analysts at FMI make the sharpest version of the point: a project can look profitable on its own and still lose the company money once overhead is counted.

There is truth in that. But I would not tell a small contractor to start with a huge job-costing system. A lot of guys are not tracking the basics yet. Make the math too complicated and they quit before it helps them.

Keep it to five questions after every job: What did we estimate? What did it really cost? What overhead did we miss? Did we collect the money? What changes before the next quote?

The SynkedUP channel describes what happens when you keep that loop running:

"When I track, now I have estimated versus actual, which gives me the ability to do job costing."

Around the loop again and again, and your estimates stop being guesses.

I learned this the hard way. One year I hired a second salesperson. Revenue went up about 40%. On paper, that sounds great. Then tax time came around, and the books showed I made about the same money as the year before. Same money, more people, more clients, more headaches. It was not worth it. That locked in my respect for tracking the numbers.

Camp 3: Watch the cash

This camp says paper profit does not make payroll. Shawn Van Dyke and the Profit First crowd teach contractors to split cash into separate buckets as it comes in: tax, owner pay, profit, operating expense. That way the money for each is real, not theoretical.

That is useful because it turns math into behavior. But cash control still has to tie back to pricing. You can split money into buckets all day. If the job was priced wrong, the buckets still come up short.

One of the best rules I ever made came from a bad emergency call. I took the call with no deposit. We fixed the problem. Then the customer ghosted and never paid. Since then, I do not start a project unless my costs are covered up front at minimum. People have failed to pay me since then, but it has never put me in the hole.

That is the point. Do not lose money.

It is like trading. Everybody wants to win big. The real key is not losing big. Once you get good at never losing money, then you can start moving the levers that make more.

The Adapt way to remember it

Draw the business like a stack. Job cost sits at the bottom. Overhead sits above it. Profit sits above that. The customer price has to cover all three.

Now draw a calendar. Every week that passes, overhead keeps burning. If a job slips, a payment is late, or a crew spends two extra days, overhead does not stop.

Your first job as an owner is not to become an accountant. It is to stop guessing.

Get comfortable with the numbers, or pay somebody to help you. But never pay someone to handle money you do not understand. That is how you get taken advantage of.

And there is no excuse now. Everybody has a calculator and access to AI. You can hand this article to Claude or ChatGPT and ask it to help you figure out your overhead and price a project. It will walk you through it. Most contractors do not know what they do not know until somebody shows them.

The other problem is fear. Contractors price work out of their own pocket. They know what they would pay, so they are scared to charge what the job needs. The old saying has some truth to it: if there is no pit in your stomach, the price is probably not high enough.

Do not even get out of bed if the math does not work.

That is the closer. Not more leads. Not more hustle. First, do not lose money. Then grow.

Simple 3-step checklist

This works if you are brand new, and it works if you have been in business for 20 years.

Step 1: Track three numbers in the bookkeeping app.

Money in. Everything that comes in, in exchange for a job. Invoices and payments. Send every invoice through the app.

Job cost. Everything that goes out to complete the job: labor, material, subs, equipment, permits, disposal, and anything job-specific.

Business expenses. Also called overhead. Everything that goes out to keep the business going, job or no job: insurance, trucks, phones, software, admin, bookkeeping, marketing, owner pay, non-billable time, and the rest.

Track all three in one place, and the app can tell you the truth:

Money in - Job cost - Business expenses = Net profit (what you keep)

Step 2: Look at it once a month.

Open the P&L. Look at operating expenses. Divide the last 12 months by 12, or use your best annual estimate if you are new. Compare estimated cost to actual cost. Check whether you collected the money.

Step 3: Use the if-then rule.

If you are not making enough on projects, raise prices.

If you are making plenty, you have room to lower the price to win a job you really want.

That is it. Know the cost. Know the overhead. Price for profit. Do not lose money.