An important figure in your restaurant’s profitability is its break-even point. This amount represents the sales that you need to cover all your costs. The calculation begins with determining your variable and fixed costs.
Variable costs (e.g. food, beverage, supplies and payroll for hourly employees) can change depending on the level of sales. During a restaurant’s busier months, more food and beverages are purchased and additional staff members are scheduled to work. Therefore, during such busy periods, sales and variable costs are higher than slower periods.
Fixed costs (e.g. rent, insurance, payroll for salaried employees, utilities, etc.) generally stay the same regardless of sales levels. Generally, fixed costs during busy periods are similar to fixed costs during slower periods.
Once you have determined your restaurant’s variable and fixed costs, the following is the break-even sales calculation:
Break-even sales = Fixed Costs / (1 – Variable Costs Percentage)
Variable Cost Percentage = Actual Variable Costs / Actual Sales
The break-even sales amount tells you about the profitability of your restaurant. The lower the break-even sales amount, the easier it will be for the restaurant to make a profit.
Break-even sales can be lowered by reducing your variable costs percentage. The variable cost percentage can be reduced in the following ways:
- Lowering food and beverage costs; and
- Improving the efficiency of labor (e.g. reducing staff overtime).
Do you know your restaurant’s break-even sales?
If you have any questions regarding this calculation, please contact Darwin Mintu at 312.670.7444. Visit ORBA.com to learn more about our Restaurant Group.