How to Calculate a Restaurant Break-Even Point with free calculator

The contribution margin is nothing simply your products selling price minus variable cost. In other words, it is the cost of an entree minus the cost of the ingredients and labor used to prepare the plate. Conducting a break-even analysis reveals how many units or sales you need to make to break even. Rather than increasing the number of units you sell, you can also increase your menu items’ prices or decrease the cost per unit. Your break-even point demonstrates how many people you need to serve in order for your restaurant to make money, based on how much money the average guest spends. The amount of revenue needed depends on the sum of your total fixed and variable expenses over a certain period of time.

When you have this number in mind, you can actually see what impact changes you make in your business have on your profitability. Additionally, it helps us analyze different location opportunities, return on investment of our capital, and sets us up for success from day one. As a starting point, it also helps you understand realistic costs, optimal pricing, and sales plans. For example, if you take your average sale price from your point of sale and your average cost of goods for both food and beverage , you can quickly use these averages to help with your calculation. If you had 1 employee working or the entire team of 100 working, these costs would not fluctuate. I like to include salaried employees as a fixed cost, as even if the restaurant has a bad week, month, or quarter, these employees are rarely let go and treated as variable. Knowing what your break-even is before a slow month or Friday night ensures you can set realistic performance goals for your bar or restaurant.

Learn to Calculate the Break-Even Point for Your Restaurant

The two most useful are by creating a break-even calculator or by using Goal Seek, which is a built-in Excel tool. Total Variable Costs are tougher to know, but they are estimable and include things like direct material, billable labor, commissions, and fees. Total https://online-accounting.net/ Fixed Costs are usually known; they include things like rent, salaries, utilities, interest expense, depreciation, and amortization. Full BioPete Rathburn is a freelance writer, copy editor, and fact-checker with expertise in economics and personal finance.

Using the most recent data allows you to include any of the most recent cost changes e.g. new salaries or a rise in food costs, in your calculation. It is easiest to conduct a restaurant break-even point and restaurant break-even analysis in excel. To calculate a restaurant’s BEP you’re going to need the restaurant monthly expenses i.e. restaurant fixed and variable costs, for a given period along with the total sales for that period. Before you determine your break-even profit for your restaurant, you need to understand the difference between fixed and variable costs.

Dollars

So, find your contribution margin by subtracting the average cost per unit from the average revenue per unit. Next, find your contribution margin ratio by dividing your contribution margin by your average revenue per unit. Just like in the previous formula, break even analysis for restaurant to find the sum of recurring costs, you need to add up your restaurant’s regular expenses, like rent, wages, and inventory costs. The break-even point by sales dollars formula reveals how much revenue your restaurant must generate to break even.

This includes occupancy costs like rent and property tax, along with fixed salaries, office supplies, licenses and permits, and insurance. To calculate the break-even point, you need to figure out when revenue exceeds costs. This restaurant must serve 3,969 guests in this time period to break-even, i.e. neither turn a profit nor a loss.

Contribution Margin

They’re hypothetical figures that we created to help us with this calculation. A restaurant is first and foremost a business and needs to be treated as such to stay open for the long term. A break-even point restaurant analysis can unlock powerful insights into your business’ financial health and help you plan for its longevity. You own a sandwich shop and want to figure out how many sandwiches you need to sell each month to break even. Knowing your numbers, including your break-even point, is a critical part of running a financially viable restaurant. Your restaurant can have a James Beard Award and tables filled with customers, but if it’s spending more than it’s bringing in, the business will inevitably fail. Regulations and public advisories for restaurants during the coronavirus pandemic range widely throughout the country.

Evaluate your restaurant’s financial strengths and weaknesses with the free P&L and income statement template. Consistent recipe costing and standardization, such as what xtraCHEF by Toast offers, simplifies plate costing and helps you maximizes margins. Successful plate costing is an ongoing process, but many operators do it only once or not at all because of the effort and complexity often involved. Because you have an actual number to aim for, you can be more intentional about key areas like pricing and recipe construction to align with these sales and cost targets.

Tips for Improving Front-of-House Restaurant Operations

These are the costs that don’t fluctuate every month, such as rent, utilities, payroll and licenses and permits. For a restaurant, this should generally exclude your ingredients.

Using the earlier example, let’s say that the total fixed costs are $10,000. With this information, we can solve any piece of the puzzle algebraically. For example, if a product sells for $200 each, and the total variable costs are $80 per unit, the contribution margin is $120 ($200 – $80). The $120 is the income earned after deducting variable costs and needs to be enough to cover the company’s fixed costs. For best results, use a 4-week or monthly profit and loss statement (P&L) from three periods from the last 12-months to calculate breakeven analysis. Using real-time data will take into consideration market changes and seasonal trends for your area. It should include your restaurant’s highest and lowest sales period to adequately calculate a middle of the road view.

The formula is effective in calculating your break-even point in a dollar amount. If you have categorized your costs into fixed and variable, you do not have to factor in the dollar average for each guest. In cost accounting, the high-low method is a way of attempting to separate out fixed and variable costs given a limited amount of data. Adjust the number of units sold until the profit is at zero to determine how many items you need to sell to break even. The beauty of Excel is that you can easily tweak the numbers as needed to see how your restaurant can make a profit.

• But in this case, we need to estimate both the number of units sold and relate that as a function of the sales price we solve for.
• While the sandwich shop examples mentioned earlier calculated the break-even point on a monthly basis, you can also calculate it on a weekly, quarterly, or annual basis to set sales targets.
• Before you determine your break-even profit for your restaurant, you need to understand the difference between fixed and variable costs.
• Finally, we can easily build a sensitivity matrix to explore how these factors interact.
• Digital Ordering Meet guests where they are with online ordering, a mobile ordering app, and contactless delivery.
• This includes occupancy costs like rent and property tax, along with fixed salaries, office supplies, licenses and permits, and insurance.

This is the most basic level of conducting a break-even analysis. The importance of calculating the break-even point is to determine the number of products your restaurant needs to sell to make a profit. As you conduct your break-even analysis you should aim at selling more products. You will also be able to determine whether the business is making profits under the current sale volumes. Learn how to calculate plate costs so you can properly price menu items, manage your COGS, and achieve profitability targets. The Break Even Point Template allows Jack Gordon the ability to analyse the costs and present a numerical and graphic analysis of just how much the business needs to sell to say alive.

When to Use Break-Even Analysis (aka Our Newfound Math Skills)

When you calculate the break-even point for your restaurant, the units are the number of guests while the unit price is the dollar amount for the guest average. Since it is difficult to obtain the variable cost per guest, you can use estimates of your food and beverage margins in the following alternative formula. Taking charge of it may not seem like the easiest thing, but it really isn’t hard when you get down to it. Get to grips with your fixed costs, variable costs, and total sales, use the break-even formula, and invest in the right tools to reduce it so you can become profitable much sooner.

When collecting data to use for a BEP analysis remember that these factors can be affected by things outside of business volume e.g. being understaffing for a week, or local events, etc. Taking this into account helps to improve the accuracy of a break-even point. Restaurant break-even analysis maps your path to profitability, helping you set sales targets and be more intentional about strategic decisions. Use this information to shop for new suppliers or increase selling prices to account for cost increases and maintain your contribution margin. Following a simple invoice scan, the software automatically routes your general ledger data to your accounting software while pulling line-item invoice data into the system for accurate costing. The template will calcualte the amount that is variable automatically.

Your break-even point calculation counts on accurate expense accounting and data from your POS system about customer check averages. It is a measure that tells you how much revenue is required to cover up all the fixed and variable costs that your restaurant business will incur over a specific period of time. It is the scenario when the restaurant does not make or lose money, a simple equilibrium. Here’s a list of fixed costs, variable costs, and mixed costs to consider before you calculate your break even point.