Floor Rate Is Only the Beginning
In Module 1, you learned your floor rate—the minimum you must bill per hour just to cover the cost of that employee. But your business has more mouths to feed than just payroll.
Rent doesn't care if you had a slow month. Insurance premiums clear whether you billed 100 hours or 1,000. And somewhere in all of this, you need to get paid too.
The survival number is the total revenue your business needs to generate just to keep the lights on and put food on your table. Not profit. Not growth. Just survival.
The Three Buckets
Every dollar that comes in gets claimed by one of three buckets:
Bucket 1: Cost of Delivery
This is your floor rate × hours. The direct cost of doing the work—labor, materials, subs. If you don't bill it, you don't pay it (mostly).
Bucket 2: Fixed Costs (Overhead)
These hit every single month whether you work or not:
- Rent / mortgage
- Insurance (GL, E&O, cyber, etc.)
- Software subscriptions
- Loan payments
- Utilities, phone, internet
- Accounting, legal, bookkeeping
- Marketing (if committed)
Bucket 3: Owner's Draw
You. The person who started this thing and takes all the risk. If there's nothing left after Buckets 1 and 2, you don't eat. That's not a business—that's an expensive hobby.
Calculating Your Survival Number
Let's build a simple example:
| Category | Monthly | Annual |
|---|---|---|
| Rent | $2,500 | $30,000 |
| Insurance (all policies) | $800 | $9,600 |
| Software & Tools | $400 | $4,800 |
| Phone/Internet/Utilities | $300 | $3,600 |
| Loan Payments | $500 | $6,000 |
| Accounting/Legal | $250 | $3,000 |
| Marketing | $500 | $6,000 |
| Total Fixed Costs | $5,250 | $63,000 |
| Owner's Draw (minimum) | $6,000 | $72,000 |
| SURVIVAL NUMBER | $11,250 | $135,000 |
This business needs to generate $135,000 in gross profit per year just to survive. That's after paying for the work itself.
Revenue vs. Gross Profit
Here's where people get confused. The survival number isn't revenue—it's what's left after you pay for the work.
If your average gross margin is 40%, you need to bill $337,500 to have $135,000 left over for overhead and owner's draw.
That's $28,125/month in revenue. Every month. Just to break even.
What's Actually Left?
Here's the brutal part. Let's say you bill $350,000 this year. Feels like a win. But watch what happens:
| Item | Amount |
|---|---|
| Revenue | $350,000 |
| Cost of Delivery (60%) | −$210,000 |
| Gross Profit | $140,000 |
| Fixed Costs | −$63,000 |
| Owner's Draw | −$72,000 |
| What's Left (Actual Profit) | $5,000 |
$350,000 in revenue. $5,000 in actual profit. That's a 1.4% net margin.
And that $72,000 owner's draw? If the business had a bad year, that's the first thing that doesn't get paid. You subsidize the shortfall with your own income.
The Reports You Need
| Report | Where to Find It | What You're Looking For |
|---|---|---|
| Profit & Loss (P&L) | QuickBooks, Xero | Total revenue, COGS, gross profit, operating expenses |
| Bank Statements | Your bank | Recurring payments you might have missed in accounting |
| Credit Card Statements | Card issuer | Subscriptions, auto-renewals, forgotten tools |
| Loan Amortization | Lender | Monthly payment amounts (principal + interest) |
| Insurance Declarations | Your agent/broker | Annual premiums for all policies |
Bottom Line
- Survival number = Fixed costs + Owner's draw (minimum)
- Revenue means nothing until you subtract cost of delivery
- If gross profit doesn't cover survival, you're working for free
- Know this number before you price anything
What's Next
You know your floor rate. You know your survival number. But here's the thing: you could maintain revenue, fire half your people, and still not be as profitable as you expect. Why? Because the problem isn't always how much you bill—it's how much of your capacity actually gets billed.
In Module 3: Utilization, we'll dig into the silent killer of margins—and why "busy" doesn't mean "profitable."