Your overheads are not what you have to earn
Ask most people what they need to turn over to cover £3,000 a month of overheads and the instinctive answer is £3,000. It is a very long way out.
Break-even turnover is fixed costs divided by your margin, not fixed costs plus a bit. On a 20% margin, £3,000 ÷ 0.2 is £15,000. Five times the overhead, because only twenty pence in every pound you invoice stays with you. The other eighty went straight back out on materials, labour and plant before the rent was even considered.
Put another way: every pound of overhead needs five pounds of work standing behind it. A van on finance at £400 a month is not a £400 problem, it is a £2,000 problem.
It gets worse quickly, not slowly
The multiplier is one divided by the margin, and that curve accelerates. It does not step down politely as the margin slips:
- 25% margin: 4× your overheads
- 20% margin: 5×
- 15% margin: 6.7×
- 10% margin: 10×
- 5% margin: 20×
Halving your margin doubles the turnover you need to survive. Every step down costs more than the step before it, which is exactly the same arithmetic as a discount: a small concession on price is an enormous concession on how hard you have to work. It is worth looking at that table before you agree to anything, never after.
The box every other calculator leaves out
Break-even calculators ask for your fixed costs and give you a list of examples: rent, salaries, insurance, utilities. Read that as a limited company with a payroll and you put the right number in without thinking about it, because your own wages are already sitting in the salaries line.
Read it as a sole trader and there is nothing there for you. You have no salary line. You take drawings when the money is there. So the rent and the van go in, the answer comes back, and it is the break-even for a business whose owner is paid nothing at all.
That is why your own pay gets a box of its own on this page rather than a mention in a tooltip, because the failure is not misunderstanding the sum, it is never thinking of it. Working it through: £12,000 of overheads, £100 of contribution a job, and you need £18,700 out to live on. Without your pay it is 120 jobs a year, a comfortable 2.3 a week. With it, it is 307, which is 5.9 a week. Same business, same margin, two and a half times the work, and only one of those two numbers is the truth.
Leave it at zero if you mean zero, which is a real answer in a first year funded some other way. Just mean it.
Use margin, not markup
This is the input that quietly corrupts the answer. If you add 25% to your costs, that is a 20% margin. The 25 you added was markup. Typing 25 into the box here makes break-even come out at £12,000 instead of £15,000, and you would go into the year three thousand pounds of turnover short without knowing it.
Counting jobs rather than turnover
If you sell something countable, the number of jobs you need is your fixed costs divided by the contribution from one job, never by what it sells for. A £200 job that costs you £150 contributes £50, so £3,000 of overheads needs sixty of them. Dividing by the £200 price would tell you fifteen, and fifteen jobs would leave you £2,250 short of the rent.
The tool shows both the margin you typed and the margin your job figures imply, instead of letting one silently override the other. When those two disagree, find out which is wrong before you plan a year around it.
Break-even is a floor, never a target
Break-even is a floor, not a target. It is the point at which you have paid for the privilege of being in business and earned nothing at all for yourself beyond whatever wage you put in the fixed costs. Whatever you want to earn sits on top of this number, and works the same way: another five pounds of turnover for every pound of it.
Common questions
How do I calculate break-even?
Fixed costs divided by your margin, as a decimal. Overheads of £3,000 a month on a 20% margin is £3,000 ÷ 0.2, so £15,000 of turnover. It is a division, not an addition, and that is why the answer is so much bigger than people expect.
Why is break-even five times my overheads?
Because only twenty pence in every pound is yours to pay them with. The other eighty pence went out again on materials, labour and plant. So every pound of overhead needs five pounds of work standing behind it before you have earned anything.
What counts as a fixed cost?
Anything you pay whether you work or not. Rent, the van, insurance, staff wages, accountancy, phones, software. Materials and subcontractors are not fixed, because they move with the work and are already accounted for inside the margin. Your own pay has a box of its own on this page, so keep it out of this one.
Should I include my own wages in break-even?
Yes, and this page gives it a separate box precisely so you cannot forget. Most break-even calculators ask for fixed costs and list examples like rent, salaries and insurance. If you run a limited company with a payroll you put the right number in without thinking. If you are a sole trader you have no salary line to think of, so it goes in at nothing, and the answer that comes back is for a business whose owner is paid nothing. It is not a small difference: on £12,000 of overheads at £100 contribution a job, 120 jobs a year becomes 307 once you put £18,700 of your own pay in. That is 2.3 jobs a week becoming 5.9.
What happens to break-even if my margin drops?
It rises much faster than the margin falls, because the multiplier is one divided by the margin. At 20% you need five times your overheads, at 10% you need ten times, at 5% you need twenty. Halving your margin doubles the turnover you need just to survive.
Should I use margin or markup here?
Margin. If you add 25% to your costs that is a 20% margin, and putting 25 in the box makes break-even look £3,000 lower than it is. The markup versus margin tool converts between them if you are not sure which one your number is.
How many jobs do I need to break even?
Fixed costs divided by the contribution from one job, which is the price less what that job costs you. Not divided by the price. A £200 job costing you £150 contributes £50, so £3,000 of overheads needs 60 of them. Dividing by the £200 would say 15, which is four times too optimistic.