They include food and beverage costs, disposables and garbage bags, cleaning supplies, prime costs, labor costs, and others. On the other hand, variable costs vary based on changes in production. They include licenses and permits, occupancy expenses, marketing costs, and communication tools like the internet. Fixed costs are the expenses you must incur in your restaurant, regardless of your sales or production volume. What is the Difference Between Fixed and Variable Costs?īefore you determine your break-even profit for your restaurant, you need to understand the difference between fixed and variable costs. The figure you get at this point represents the number of items in your menu that you need to sell monthly to break even. Diving your total costs by the contribution margin to get your break-even point.Calculate the difference between the average revenue and the average cost to get the contribution margin.Then divide this figure with the total number of menu items to get the average variable cost. Get the total cost of ingredients for every menu item.The figure that you get is the average revenue per item. Add up the costs of menu items, then divide the total with the number of items.Add up all the costs that do not fluctuate on a monthly basis to get the total fixed costs. Breaking down the formula, you calculate this point in the following five steps: The simplest way to understand the break-even point is that it is the number of menu items that your business needs to sell for your restaurant’s total costs to equal your revenue. If you have categorized your costs into fixed and variable, you do not have to factor in the dollar average for each guest. The formula is effective in calculating your break-even point in a dollar amount. The formula means that you divide your fixed costs with the contribution margin as follows:īreak-Even Point = Fixed Costs ÷ Contribution Margin Ratio 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.īreak-Even Point = Fixed Costs ÷ (Total Sales – Variable Costs/Sales) 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. The formula is as follows:īreak-even Point = Fixed Costs ÷ (Average Revenue per Menu Item – Average Cost per Menu Item) You start by separating the total fixed costs from the restaurant’s variable costs. For businesses in the restaurant industry, the most effective way is using the average price and average cost of menu items. The break-even point is usually calculated based on the industry. How do you calculate the break-even point for a restaurant? It lets you know the number of people you need to serve at a determined average price point for your restaurant to make a profit. Once this figure has been calculated, you get to know the number of sales you need to make a profit. It represents the amount of revenue needed to cover the restaurant’s fixed and total variable costs over a specific time period. The break-even point is the point at which the revenue of your restaurant equals the costs.
This will help you set the right prices for your products and aim at reaching optimal sales volume. However, it is important to conduct a break-even analysis to understand how profitable your business is.
While this is a crucial metric in running a restaurant, some people tend to overlook it. What is the break-even point for a restaurant?įor most business owners, they tend to wonder when their business will break even. What is the difference between fixed and variable Costs?.
#Break even point formula calculator how to#
How to calculate the break-even point for a restaurant?.What is the break-even point for a restaurant?.To give you a better understanding of this concept, this article will explain: It is the point at which your restaurant will not lose any money. It represents the number of sales your business needs to make over a period of time to remain profitable. The break-even point is an important figure in running a profitable restaurant.
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