Can You Take a Job Below Cost? — Break-Even and the Cash Floor Are Not the Same Number

This article covers management-accounting principles for decision support. It is not accounting or tax advice for your specific circumstances. Fixed costs and billable hours differ by business — always use your own figures.

The situation every job shop knows

A customer calls to negotiate. You quoted ฿88,000. They say another supplier offered ฿55,000.

You open your file. The cost of this job, as you calculated it, is ฿66,231.

฿55,000 is ฿11,231 below cost — the answer looks obvious. Turn it down.

And this is exactly where a great many job-based businesses make the wrong call, without a single number on the screen being false.

The problem is what "cost" means in that sentence

Take a real example — a small steel fabrication shop:

The job on the table:

That gives two numbers, and most people only know one of them:

Break-even for this job = 38,000 + 4,000 + (24 × 1,009.62) = ฿66,231

Cash floor for this job = 38,000 + 4,000 = ฿42,000

The first is the price at which the job carries its own share of rent and salaries. The second is the money that actually leaves your bank account if you say yes.

Now look at ฿55,000 again

These two lines do not contradict each other. They answer different questions.

Rent and salaries this month are paid at the same level whether or not you take this job. If you decline, that ฿420,000 still goes out — with nothing helping to carry it.

Accept → ฿13,000 of surplus cash arrives to help pay for it. Decline → ฿0.

At month end, the option labelled "decline, it's below cost" leaves the business ฿13,000 worse off than the option that looked like a loss.

In management accounting, costs already incurred — or certain to be incurred regardless of the decision — are irrelevant costs for that decision. Putting them into the line you use to decide a single job means using a figure designed to answer an annual question to answer a job-level one.

So how low is genuinely too low

Try another price — the customer comes down to ฿39,000.

Refuse this one, and it is a completely different situation from the first.

You would spend ฿38,000 on materials and ฿4,000 on freight, and receive ฿39,000. The more you work, the more the bank balance falls — by ฿3,000 — before rent has been mentioned at all.

That is the true line for "this job loses money", and it sits at ฿42,000, not ฿66,231.

The distance between the two lines is ฿24,231 — the range where the decision needs other information, not the range where the answer is automatically no.

🔴 Three conditions that void the rule

This matters more than every number above, because "you can go below break-even" is an easy excuse to run a business into the ground.

1. The schedule must genuinely be open. If the month is already full, accepting at ฿55,000 means selling 24 hours cheaply that you could have sold at full price. That is a real loss, and the cash floor will not warn you, because it does not know what other work is waiting.

2. It must not become next time's reference price. Customers remember the last price you gave, not the reason for it. If you accept, attach a reason and an expiry to it — "this price works because there is a gap in this month's schedule".

3. It must not become routine. If every job lands between the cash floor and break-even, then over a year the ฿5.04 million of fixed costs never gets covered: the business loses money for the year while every job "left something over". This is a tool for quiet months, not a pricing strategy.

Two traps that make both lines wrong before you start

a. Labour counted twice. If the fitters' salaries are inside that ฿420,000 and you also add "labour ฿350/hr" for the same people to the job cost, one sum is being counted twice. The resulting price is too high, and you lose work that would in fact have paid.

The labour that belongs in the cash floor is labour actually paid extra — overtime, subcontractors, day hires taken on for this job.

b. Billable hours entered as total hours. 4 people × 160 hrs = 640 hrs is 100% utilisation, which does not exist. No travel, no meetings, no waiting for materials, no rework, no sick days.

Enter 640 instead of 416 ⇒ fixed cost per hour drops from ฿1,009.62 to ฿656.25 ⇒ this job's break-even drops from ฿66,231 to ฿57,750 ⇒ every job looks more profitable than it is, all year long.

c. Using the whole company's break-even instead of the job's. The company figure tells you what the month must turn over. It says nothing about whether the job in front of you should be accepted.

What to do

1. Calculate two lines, not one — the cash floor (never go below) and break-even (below it is allowed when the schedule is open)
2. Only labour actually paid extra belongs in the cash floor — salaries already in fixed costs must not be added again
3. Use hours actually sold, not calendar hours — if you have never measured, start at 60–70% and correct from what you record
4. Before accepting below break-even, ask three questions — is the schedule really open · will this become the reference price · how many of these have I taken this month
5. Always attach a reason and an expiry to a special price — a price with no reason attached is simply your new price
6. Watch the uncovered fixed cost from mid-month, not at month end when nothing can be done about it

The tool for doing this today

Job Costing & Pricing Calculator — an Excel file built around exactly this, for businesses that sell work as jobs (contracting, installation, made-to-order, maintenance):

• Enter materials, on-site hours and freight, and get the four numbers you must keep apart when a price is pushed: cash floor · break-even · lowest price that still clears your minimum margin · the price to quote
• A five-step status light 🟢🟠🟡🔴⛔ separates "does not carry its full share of overhead, but a quiet month beats turning it down" from "take this and real cash leaves the building" — precisely the ฿55,000 and ฿39,000 cases in this article
• Warns when a wage is being counted twice against salaries already sitting in fixed costs
• A banner frozen to the top of the sheet shows how much of the month's fixed cost no job has picked up yet, and projects the shortfall from your actual pace — so you can act mid-month
• Prices the cost of waiting for payment from the credit days, netting off what your own suppliers finance
• A self-test sheet of 24 cases you can run yourself before trusting it on live work
• No macros — Excel, LibreOffice and Google Sheets all open it

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Read next

• Are 4 Fitters Really 640 Hours a Month?
• Labour Counted Twice
• How Far Can You Discount? — The Four-Number Ladder
• Cash Locked Up in Finished Work
• Which Customers Actually Make You Money