By Sal Alfano Before you can make a profit, you need to cover your overhead. But how much work will you have to sell to do that? The answer is called your "break-even" -- the amount of sales revenue needed to pay for all direct and indirect costs. To calculate break-even, divide overhead dollars by margin percentage. For example:
$180,000 Overhead Expense divided by a 30% Margin (0.30) = $600,000 Break-Even Sales
Covering your overhead means you won't lose any money, but you won't make any money either. To find out how much work you need to do to earn a profit over and above your salary, add your net profit target amount to your overhead, and plug the total into the same formula. For example:
$180,000 Overhead + $60,000 Net Profit divided by a 30% Margin (0.30) = $800,000 Total Sales Goal
Now you're making money (if you produce the work at a 30% margin -- but that's a topic for another time).