Every successful bar and restaurant pores over inventory numbers and finances regularly. It’s the only way to proactively manage a successful restaurant in today’s competitive hospitality environment (see hospitality definition). One very important restaurant KPI managers and owners keep tabs on is the restaurant break-even point.
The break even point or break even cost is the sales figures needed for a business to offset costs. They’re not losing money and they’re not making money. They’ve broken even.
Knowing your restaurant's break-even point gives you a financial polestar. Every decision you make, before profitability, should be geared toward hitting your restaurant's break-even point.
So, let’s get to it!
Break Even Cost: How to Calculate BEP for Restaurants
To calculate the break-even point, you need to figure out when revenue exceeds costs.
The three values needed for your BEP calculation are:
- total fixed costs
- total sales
- total variable costs
What Are Restaurant Fixed Costs?
Fixed costs are fixed because they’re paid no matter what—regardless of traffic or output.
Think of it this way: fixed costs are what your business has to pay even if all your customers disappear. These can usually be found in your restaurant chart of accounts.
Fixed bar and restaurants costs include:
- Overhead expenses. This includes occupancy costs like rent and property tax, along with fixed salaries, office supplies, licenses and permits, and insurance.
- Restaurant marketing and advertising expenses.
- Equipment maintenance and repair. Restaurant hood cleaning, keg line cleaning, powering walk-in refrigerators and wine cellars, etc.
- Communication platforms. Phone service, internet, cable TV, etc.
What Are Restaurant Variable Costs?
Variable costs are the fluctuating expenses that increase because of more business. Or, conversely, decrease because of less business.
Variable costs for bars and restaurants include:
- Food cost (see our food cost calculator)
- Restaurant cleaning supplies and services
- Any credit card processing, merchant, or convenience fees
Again, these variable costs should be in your P&L.
Check your bar inventory software for historical revenue. BinWise Pro, for example, makes it easy to immediately pull up sales numbers with its SmartView Report.
Once you’ve pulled up your total sales from your bar inventory platform or POS, the break-even calculations can begin.
What Is Break Even Cost?
Break-even cost is the total of your fixed and variable costs. Your break-even point is essentially the mark where your restaurant costs and revenue total 0.
This means understanding your break-even cost is vital to calculate the break-even point and move beyond it into profit. Unlike other formulas, you need to make sure to account for every single cost you incur or your break-even point will not be calculated properly and you may end up missing out on profits.
What Is the Break-Even Point Formula for Restaurants?
The restaurant break-even formula is:
Break-Even Point = Fixed Costs / [(Sales - Variable Costs) / Sales]
Now that we’re familiar with the restaurant break-even formula, let’s look at an example.
Break-Even Analysis: Restaurant Break-Even Example
Consider the hypothetical cocktail bar The Elbow Room. Their bar manager consults their profit and loss statement and notes the following figures for the last quarter:
Fixed expenses: $70,000
Variable expenses: $50,000
Total sales: $110,000
Now let’s use the break-even formula:
Break-Even Point = Fixed Costs / ((Sales - Variable Costs) / Sales)
Break-Even Point = 70,000 / ((110,000 - 50,000) / 110,000)
Break-Even Point = 70,000 / (60,000 / 110,000)
Break-Even Point = 70,000 / .55
Break-Even Point = 127,272
We calculated this break-even point based on quarterly numbers. The Elbow Room needs to bring in $127,272 every quarter to break even.
But a restaurant break-even analysis is probably more useful monthly. When we divide it by four for a monthly break-even point, we get $31,818. The Elbow Room needs $31,818 in monthly revenue to break even.
Learning how to reduce costs in a restaurant is one way to lower that break even cost.
What Is Average Break-Even Point for a Restaurant?
In general, bars and restaurants won’t break even in their first year. For healthy operations, a restaurant's break-even point is typically met in year 2 or 3. After the third year is when bars and restaurants should begin making a profit.
The average break-even point for a restaurant is 100% dependent on that restaurant’s costs and revenue. A lemonade stand probably breaks even after a few hours with around $10 in sales. An upscale steakhouse with a 200-person dining room, not so much.
Break-Even Analysis for Restaurant Spreadsheet
You can use a break-even analysis for a restaurant spreadsheet as a restaurant break-even point calculator.
Below, you can download our free restaurant break-even analysis excel template. When you enter costs from your P&L into each fixed and variable cost category, our restaurant break-even calculator tallies up the total for you.
And when all your costs and sales are entered, our restaurant break-even worksheet gives you your break-even point in dollars.
It’s a fully customizable template. You can add new fixed or variable costs based on your business structure. Just replace _ADD NEW_ with the cost category and input the total cost for the time frame being analyzed. Again, total fixed and total variable costs will be summated for you.
The easiest way to put together an accurate P&L statement and have sales and cost figures you can rely on for break-even analysis is using a beverage inventory platform like BinWise. You can read all the restaurant management books you like, but you’ll still need software.
All the numbers you need to run a profitable liquor program are waiting for you in BinWise. Book a demo and you’ll see how easy it is to forecast, plan, and execute a successful operation. We can even show you how to perform a swot analysis for a restaurant or use our restaurant financial audit checklist for further analysis.
Frequently Asked Questions About How to Calculate Restaurant Break-Even Point
To find the break even cost of your business, it's important to understand the formula. Break even costs are essential for all business-types, including restaurants, bars, and businesses within the hospitality industry. Below are a few commonly asked questions to better understand break even cost.
How do you do a break-even analysis for a restaurant?
To do a break-even analysis, you need to use the break even point formula. Break-Even Point= Total Fixed Costs ÷ (Total Sales-Total Variable Costs ÷ Total Sales)
What's break-even analysis?
A break-even analysis is a financial calculation that weighs the cost of a new business, service, or product against the unit sell price to determine the point at which you will break even.
Why is the break-even point important for managers?
The break-even point is a good time for a bar or restaurant to determine its true cost of doing business and its prices.