If a remodeling company wants to stay in business, it must know and understand its break-even sales volume. This is the amount a company must produce and sell to cover its overhead. This is neither a profit or a loss, just the price of staying afloat.

“Accurately forecasting can be kind of risky because as remodelers, we’re risk takers,” says Dan Mackey, CR, CKBR, GCP, CGBP, president of Daniel Mackey Construction, Inc. a design/build remodeler in San Jose, Calif.

“When we predict that a job is going to take 10 hours, and we do it in eight we make a little bit of money, but those times when it takes 12 or 14 hours, when we’re working at our break-even pricing, then we’ve lost money on the job.”

To figure out a company’s break-even sales volume, management has to know what its costs are. That is figured out by tracking all of the company’s expenses such as labor, insurance, associated office costs, licenses, taxes, etc. — essentially all of the things that it takes to stay in business over the course of the year. From that a company can extract the minimum costs for doing a job and know what amount it will need to make from that job. With fluctuating costs and overhead, this should be monitored from year to year. However, working at a break-even number doesn’t allow any room for error.

One way to factor in error into a job is to look at the company history and figure in slippage to the break-even number. In other words, when a remodeler consistently bids X amount of money on a job, but comes in at a less amount, then they’ve got that percentage as their slippage and that has to be factored in.

Besides staying afloat, knowing the break-even sales volume is important during highly competitive times like now. With more companies trying to grab smaller amounts of work, they have to know just how low they can go on prices to be competitive. Quality and service will always be a determinant for hiring a remodeler, but for a lot of people, the bottom line is price.

“Knowing my break-even sales number has helped in running my business,” says Mackey. “We know when we have a need to hire more workers, and it also tells us when we might have to lay somebody off. Your sales volume has to drive all of your financial decisions.”

Calculating Break-even Sales Volume