This is newsletter #32 in the series. If you have missed prior newsletters, and are enjoying the series, we encourage you to purchase the complete Electrical Estimating Program. Click on the coupon at the bottom of this page.

Obviously, nobody wants to just break even on a job. So, why even calculate the break-even cost?

Think of the break-even cost as a line in the sand that is the point where at the completion of a job, all costs and overhead are covered with neither profit nor loss on the job. Once your bid price covers all of your job costs (the break-even point), every dollar above that is a dollar of profit, but every dollar below it is a dollar of loss. Too many dollars below that cost on too many jobs and your firm goes out of business. This, unfortunately, happens to quite a few electrical contracting companies each year.

We want to show you how to determine the component costs of the job so you can determine where the break-even point is. This process is not as easy as it might seem, but we'll give you a method to help simplify the process and make your results consistent and dependable. It is worth noting that one mistake in this process can be costly. It can even prove fatal to your company. If you are diligent with the method explained here, you can avoid that fate.

Throughout the break-even analysis process, you will have to make judgment decisions on intangibles, such as job conditions, labor productivity, material requirements, waste, theft, small tools, direct job expenses, and overhead.

Remember that making a judgment decision does not mean tossing a coin. Making a sound judgment decision requires obtaining and evaluating all available relevant information then logically analyzing your options.

Once you understand the methodology for determining the break-even point, you will be able to avoid the related pitfalls that have put many electrical contractors out of business. The key to this, however, is your determination to stick to that method and work past the fatigue and frustration that can arise during this process. Do that, and you are more likely to consistently have an accurate break-even analysis.

Summarizing the estimate to determine your break-even cost can be overwhelming. One mistake at this point can be costly in terms of losing a job or worse yet, securing a job at a loss! This is the part of the estimating process that requires you to make the judgment calls on job conditions, labor productivity, miscellaneous material requirements, waste, theft, small tools, direct job expenses, and overhead.

Never forget that poor judgment can result in a mistake that ruins your company and tarnishes your personal reputation.

The above content is extracted from Mike Holt's Electrical Estimating Program.