Find Out How to Calculate the Break-Even Point for a Restaurant

Break Even Analysis For Restaurants

Again, practicing accurate accounting is essential to how useful and informative conducting a break-analysis can be. Later we’ll go through an example of how to calculate a break-even analysis for a restaurant. In order for Pete’s Pizza to break even, it needs to generate approximately $2,951 in revenue or sell 73 pizzas every day for two years. Create custom floor plans and menus, take tableside orders, accept payments and manage your whole business from one intuitive platform.

Marketman was built out of desire to help businesses streamline processes and save money. MarketMan helps multi-unit operators and independent restaurants to improve their bottom line. Break-even analysis also relies on figuring out your fixed and variable costs. Reduce Variable Break Even Analysis For Restaurants Costs – A restaurant’s prime costs account for around 60% of its overall costs. Reducing food waste, making portions smaller, or using cheaper produce can reduce food costs, while cutting staff and better schedule restaurant management are ways of reducing labor costs.

Break-Even Formula 101: Why Knowing Your Break-Even Point Is Crucial to Restaurant Success

To calculate profit margin ratio, take your contribution margin from the per unit calculation (revenue per unit – expenses per unit) then divide it by revenue per unit. Just like in our last calculation, we calculate recurring expenses by adding up all of the restaurant’s monthly expenses. Download a free copy of our restaurant metrics calculator — including an interactive restaurant break even analysis template — to easily calculate your restaurant’s metrics.

  • If you think about it, you’ll rarely buy the same exact amount of the same ingredient each month, much in the same way you’ll never pay the same exact amount for electricity each month.
  • This means that restaurant accounting e.g. wastage logs, inventories, etc; needs to be as accurate as possible, along with the numbers coming out of the restaurant’s POS system.
  • Quick Service Restaurant Reach more customers and keep them coming back with a POS built to run at QSR speed.
  • 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.
  • Again, practicing accurate accounting is essential to how useful and informative conducting a break-analysis can be.
  • Understanding your break-even point, you may make the decision to close temporarily to avoid losing more money on your variable costs.

With restaurant technology forecasting busy as well asand slow nights, you can then schedule staff while keeping your SPLH percentage goals in mind. This way, you can optimize the mix of workers for your restaurant, ensuring that you’re not paying people to stand around and look busy. A key to breaking even is controlling your costs, so it’s important to keep a close eye on the interdependencies between your labor and sales in order to keep your labor costs low. In addition to using your POS to track your sales, you can also leverage it to track your costs.

In a year of unprecedented testing for restaurateurs and vineyard owners, the current situation looks promising for another year, and now is the time to focus on solid financial prospects for growth. Sales forecasting and break-even analysis are important steps when starting a new restaurant because they give you an idea of if you’re on the right track or if you need to adjust your numbers. Having a strong break-even analysis and sales forecasting can also persuade potential investors to buy into your restaurant. And, be sure to continue to forecast your sales even after your business has opened, so you have an accurate measure of your business’s growth and it’s profitability. Sales forecasting is a process where businesses estimate their future sales based on historical sales data, economic trends, or market analysis. Sales forecasting is important because it allows your business to make informed decisions and predict performance, which is important for potential investors.

Accounting How to Balance a Restaurant Budget After you set your restaurant budget, balancing month-to-month cash flow can be complex. We spoke with restaurateurs about how they keep their costs in check. Seventy-eight percent of restaurateurs check their financial metrics every day, according to Toast data.

Learn to Calculate the Break-Even Point for Your Restaurant

If you are able to still reach your break-even point or make a profit, you may want to adapt to the decrease in demand by adjusting your menu offerings. Consider reducing your food costs by limiting the number of menu items in a way that allows you to streamline your inventory.

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, to find the sum of recurring costs, you need to add up your restaurant’s regular expenses, like rent, wages, and inventory costs.

  • It should include your restaurant’s highest and lowest selling period to correctly calculate a median road view.
  • I specialize in local, independent and small-chain restaurants in Greater Toronto.
  • Restaurant365 seamlessly connects with leading vendor, technology, channel, and service partners to put your business in one place, one click away.
  • While the relationships with your restaurant’s food suppliers are important, you’ll need to keep an eye on gross profit margins to be successful.
  • Next, find your contribution margin ratio by dividing your contribution margin by your average revenue per unit.

In the restaurant industry, the units are the guest counts (or the number of “covers”) themselves. Learn how to calculate plate costs so you can properly price menu items, manage your COGS, and achieve profitability targets. When breaking this down, be as specific as possible and include how many units of each item on your menu you think you will sell. Calculating your restaurant break-even point is a simple yet powerful calculation, and it can be a guiding number in times of uncertainty. As restaurant owners and operators, you are making the best decisions you can with the information you have.

Break Even Analysis for Restaurants: How to Calculate B.E.P

Using the above formula is how to calculate a break-even point in dollars. This will provide you with a total revenue goal for when a restaurant should break-even. Before you learn the break even analysis formula, you need to calculate all of your restaurant’s expenses. That’s an intimidating figure that may seem out of reach to you today. You divide your break event point by 12 months and learn that your business will need to generate $62,500 in revenue each month to meet that deadline. Dollars, you’re trying to find out how much revenue your restaurant will need to generate to end with a $0 balance at the end of a certain period of time. The vendor hub in xtraCHEF by Toast provides a complete list of all your vendors, what you’ve purchased from them and how much you’ve paid.

Break Even Analysis For Restaurants

The calculation can also be used to correctly forecast year-end totals without knowing the final sales figures. This could help with year-end financial planning, hiring and assigning staff, and ordering inventory. This valuable benchmarking tool can help forecast a restaurant’s profitability; one data point among a year of consistent changes. This represents the number of menu items you need to sell each month to break even. If your state or municipality is allowing restaurants to be open, whether that’s for delivery only or full service, you still are probably experiencing a slow-down in business.

Bear in mind, the formulas we’ve used aren’t necessarily a mandatory part of the process but are definitely helpful and time-saving. As with all other financial analysis, calculating the break-even point is easier said than done. There are a couple of factors you should consider, and use in your favor, before coming up with a definitive answer and a relatively precise timeline. Sandwich shops, pizza parlors, and ice cream shops are examples of venues that might use the formula for break-even point by units. Family Style Turn more tables and delight guests with a POS built for family style restaurants. We sell more payment, assisted and self-service technologies than almost any other vendor in the world.

Inflation Trends in the Hospitality Industry: What You Need to Know

The restaurant industry has experienced a challenging 18-month tidal wave of changes and obstacles. Next, you have to subtract your restaurant’s overhead costs, such as rent and utilities, and any ongoing costs from the overall revenue. Subtract the average variable cost from the average revenue per item. Add up all of the costs of the items on your menu and divide that by the number of items you offer to determine the average revenue per item. Let’s apply the break-even formula per sales dollars to the sandwich shop example.

  • Calculating break-even point by units, rather than by sales dollars, is most useful when your menu has only a few items on it.
  • Luckily, POS software today can track day-by-day, hour-by-hour sales data to help you understand and forecast what time periods are busiest at your restaurant.
  • Then, adding all of these numbers together, you find your overall revenue.
  • When the time period is taken into context these numbers can become much more manageable than the large numbers of 4,000 guests or 8,000 slices of pizza.
  • This exercise can be tricky because some restaurant costs are the same every month (a.k.a. fixed costs), some always vary , and others are a mix of both .
  • These are the costs that don’t fluctuate every month, such as rent, utilities, payroll and licenses and permits.

The food needs to be good, the menu needs to be streamlined and enticing, and perhaps most importantly, the customer has to feel welcomed, appreciated, and respected in your establishment. They’re hypothetical figures that we created to help us with this calculation. This goal can seem lofty when you first open a restaurant, since it may be a long time before you get out of the red and start seeing profits. They ignore dynamic ingredient price changes, which don’t get accounted for in menus, leading to a lower contribution margin and a longer time before breaking even.

Tips for Creating a Sales Forecast

There are also administrative tasks that, while less thrilling, are critical to the success of the restaurant. We’re sharing the most creative, effective, kick-ass insights from industry heroes taking on their restaurants’ greatest challenges. Sign up to get industry intel, advice, tools, and honest takes from real people tackling their restaurants’ greatest challenges. Justin started in the restaurant industry at 15 and hasn’t really stopped. Any ingredient price updates automatically flow to adjust recipe prices.

Break Even Analysis For Restaurants

As we mentioned, knowing your business’ break even point can help you set realistic business goals. When goals are realistic, there’s a greater chance that they’ll be met.

He also served on the Advisory Council of the Illinois Restaurant Association and is past president of the Food and Beverage Equipment Executives. He shares his experience and knowledge of the industry as an adjunct professor in the Manfred Steinfeld School of Hospitality at Roosevelt University in Chicago. Using the break-even analysis model can estimate how much money the restaurant is making based on a certain level of sales.

Break Even Analysis For Restaurants

For example – in a specific time period, at what sales volume did my total contribution margin break-even my bottom line, canceling out my total fixed costs? After this, each additional dollar earned should have gone straight to your net income.

Group mixed costs with fixed costs and use a monthly average to calculate your break-even point. Set Menu Prices – If a unit based or guest quantity sales goal seems unachievable then managers can do one of two things, reduce costs or raise prices.

Calculating the Break-Even Point with a Simple Formula

By creating a master inventory list, you can itemize each ingredient that you source along with its cost and then determine a cost amount for each item on the menu. With this information, you can set appropriate price points for each menu item based on their costs and your restaurant’s target margin. More than setting the right price, your restaurant marketing team can work to promote the menu items that generate the highest profit for your business. Running promotions and specials on the options that are the lowest cost to you can increase your contribution margin which helps you reach that breakeven point. The lower your costs, the less your restaurant’s revenue dollars have to “cover” to break even and begin making a profit.

Quick Service Restaurant Reach more customers and keep them coming back with a POS built to run at QSR speed. Fine Dining Deliver elevated experiences and exceptional service with a seamless POS platform. Full Service Restaurant Turn more tables, upsell with ease, and streamline service with a powerful system built for FSRs. Whether that’s literally up front with your customers, or out front of your competition.

Ensuring you are working with realistic, data-driven numbers is a critical step in making the best decisions you can for your business, staff, and customers. To perform a break-even analysis, the first numbers you need to collect are your fixed and variable costs. To find your contribution margin ratio, you’ll first need to calculate your contribution margin. You’re going to calculate contribution margin differently than you did for the break-even point per sales dollars formula. Then you divide your recurring monthly expenses by your contribution margin ($25,000 / $7) and learn that you have to sell 3,571 sandwiches each month to break even. Choose a period of time over which you’d like to know your break-even point. For example, if you calculate your monthly break-even point, you’re learning how many units you have to sell in one month to earn as much as you spend in one month.

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