Chartered Financial Analyst specializing in small business finance and profitability models for service-based companies.
Find out how many clients or billable hours your service business needs to cover its fixed costs. Enter any three variables—Fixed Costs, Price per Service, Variable Cost per Service, or Service Units—to solve for the fourth.
Service Business Breakeven Calculator
Service Business Breakeven Formula
The breakeven formula for a service business finds the number of units (Q)—such as clients, projects, or billable hours—needed to cover all costs.
Q = F / (P – V)
Solve for Fixed Costs (F):
F = Q * (P – V)
Solve for Service Price (P):
P = (F / Q) + V
Solve for Variable Cost (V):
V = P – (F / Q)
Variables Explained
- Fixed Costs (F): Total monthly costs that don’t change with clients (e.g., office rent, software subscriptions, full-time salaries).
- Price per Service (P): The average price you charge for one unit of service (e.g., one billable hour, one project fee).
- Variable Cost per Service (V): The costs to deliver one service unit (e.g., contractor fees, software usage fees, travel).
- Breakeven Service Units (Q): The number of service units you must sell to reach $0 in operating profit.
Related Calculators
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What is a Service Business Breakeven Point?
The **Service Business Breakeven Point** is the number of service units (like billable hours, projects, or clients) that a company must sell to cover all of its costs. At this point, the business is neither making a profit nor a loss; it is “breaking even.”
Unlike manufacturing, a service business’s “unit” is intangible. It could be an hour of consulting, a monthly retainer, or a fixed-price project. The variable costs (V) are often lower and might include things like a freelancer’s pay for that project, software costs per user, or transaction fees. The fixed costs (F) are typically the largest expense, such as salaries, rent, and insurance.
This calculation is vital for consultants, agencies, and freelancers. It answers the question, “How many projects or hours do I need to sell this month to pay my bills?” It’s driven by the **Contribution Margin** (P – V), which is the profit from a single service unit *before* paying fixed costs.
How to Calculate Service Breakeven (Example)
Let’s calculate the breakeven point for a marketing consultant who works in billable hours.
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Identify Fixed Costs (F):
The consultant’s total monthly fixed costs (office rent, insurance, software) are $8,000.
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Identify Price (P):
They charge clients $150.00 per billable hour.
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Identify Variable Cost (V):
The variable cost per hour (e.g., platform fees, cost of a freelance assistant for that hour) is $25.00.
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Apply the Formula: Q = F / (P – V)
First, calculate the contribution margin: $150.00 (P) – $25.00 (V) = $125.00.
Next, divide the fixed costs by this margin:
Q = $8,000 / $125.00 = 64 -
Conclusion:
The consultant must sell 64 billable hours each month to cover all costs. The 65th hour billed will be their first hour of profit.
Frequently Asked Questions (FAQ)
Fixed Costs are predictable monthly expenses like employee salaries, office/studio rent, and software subscriptions. Variable Costs are tied directly to delivering the service, such as paying a contractor/freelancer for their time, client-specific software costs, or travel expenses for a client meeting.
The logic is the same. ‘P’ becomes your average project price, ‘V’ is your average cost to complete one project (e.g., freelancer pay, software), and ‘Q’ is the number of projects you need to sell.
Use an average. Look at your last 6-12 months, add up your total service revenue, and divide it by the total number of “units” (e.g., clients, projects, or hours) you sold in that period to find your average (P).
You can work backward. If you know your Fixed Costs (F), your Variable Cost per hour (V), and the number of Hours (Q) you can realistically work and sell, you can solve for (P) to find the minimum rate you must charge to break even.