Last week, I stressed to you the importance of understanding your numbers and calculating your break-even point. Today I’m going to show you how to compute one of the most critical numbers you need to know: your break-even point.
Many tradies are slogging away, working hard all day but still struggling to make ends meet. This is often because they have no idea how much money or how many jobs they need to simply break even in their business.
Knowing your break-even point will help you determine how many jobs you need to complete on a monthly, weekly, or daily basis. It will also help you identify where your money is going, so that you can make simple changes that produce a massive difference in your profitability.
Here’s how to do it…
1. Calculate Your Gross Profit and Gross Margin.
Your gross profit is the amount of money you make AFTER you pay for your cost of goods sold. Your gross margin is the percentage you make over your cost of goods purchased.
The worksheet below will help you find both numbers…
2. Calculate your “Break Even” based on your Gross Margin in Step 1.
This figure will reveal to you the total sales you need to make to break even, and how many sales you need to close in order to achieve your break even after covering all your expenses.
Step 3. Determine how many leads you need to generate to reach the break-even point identified in Step 2.
Next, find out your conversion rate based on the total amount of leads or enquiries you receive in a given timeframe. Discover how many leads you need to generate to achieve the transactions necessary to reach your break-even point. Then you will calculate your net profit as both a dollar amount and percentage.
Now that you know these critical numbers, you’re more equipped to create your business’s budget.
If you need assistance on how you can apply this to your own business, our expert coaches will be more than happy to help you with that. Simply request a Business and Marketing Assessment with Trades Coaching today. We’ll provide you with actionable, high-impact advice you can use to improve your business immediately…whether or not we do business together. CLICK HERE to receive your FREE session.