What each sales dollar does for your company

A million dollars in sales is a good number to work toward. You can picture the roofs, the crews, the trucks leaving the yard. To see what that million can do for your company, give each part of it a job. Some pays for the work. Some keeps the company running. What remains after those costs is the profit in your plan.

That is what the picture on Roofometry’s The numbers page helps you see. The arithmetic is simple enough to work through on paper, and understanding it gives you a much better reason for the price you put on the next roof.

Start with one dollar

Suppose you plan for a 40 percent gross margin. In the page’s planning calculation, that leaves 60 cents of each sales dollar for job costs and 40 cents to cover overhead and leave a profit. The percentage is a share of the selling price. Adding 40 percent to a cost is a different calculation.

For an example with round numbers, use a $1,000,000 revenue target and $300,000 of annual overhead. These are example figures, not a recommendation for what your company should spend.

• Sales: $1,000,000.
• Job costs at the planned margin: $600,000.
• Left after job costs: $400,000.
• Annual overhead: $300,000.
• Left after both: $100,000.

Now every dollar has somewhere to go: 60 cents to the jobs, 30 cents to overhead, and 10 cents left. That last dime is the profit this plan shows, based on the costs included. A revenue target gives you a destination. This calculation tells you what reaching it would leave.

Why covering $300,000 takes $750,000 in sales

Every sale brings its own job costs along. With 40 cents of each dollar available for overhead, $300,000 in sales contributes $120,000 toward that overhead. Keep the same margin and you need $300,000 ÷ 0.40 = $750,000 in sales to cover all $300,000.

You can check it backward. At $750,000 in sales, job costs take $450,000. The remaining $300,000 exactly covers overhead. Nothing is left over. That is the break-even figure for these assumptions.

Roofometry’s Break-even tile divides the year’s overhead by the margin the page is using. Treat that as a planning estimate with a steady margin and an unchanged annual overhead amount. In formal break-even analysis, the divisor is the contribution margin ratio: the share left after all variable costs. Gross margin can differ from it. If some of your overhead rises with sales, or your next jobs have a different cost mix, revisit the estimate. AccountingCoach explains the accounting formula and its assumptions.

Give the plan better numbers as you learn them

Until the page has both crew labor and projected materials, it uses your target margin to work out a combined job-cost amount. Once both are available, it adds them and works out the margin from those costs and your revenue target.

Say crew labor is $350,000 and projected materials are $220,000. Together they are $570,000. Against the same $1,000,000 revenue target, that leaves $430,000 before overhead: a 43 percent margin. Subtract the same $300,000 overhead and the plan leaves $130,000.

That is why filling in the costs matters. A target is where you intend to go. The entered and projected costs let you check whether the plan supports it. Neither example means the money has already been earned or collected.

Read the calendar with its assumption attached

In the first example, $750,000 is 75 percent of the million-dollar target. Spread sales evenly across a January-to-December year and that takes nine months. The tile therefore puts overhead coverage at the end of September. A seasonal roofing business may sell and collect on a very different schedule. The month strip illustrates the plan; it does not track your bank balance.

Open The numbers, review the revenue target and margin, and make sure the costs behind the picture are current. Then follow a dollar through it yourself. You can see what the jobs need, what the company needs, and what you are working to keep. That gives the next sale a purpose you can explain.