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Calculate Restaurant Break Even Point: Break Even Analysis

March 8, 2021
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Every successful bar and restaurant pores over their inventory numbers and finances on the regular. It’s the only way to proactively manage a restaurant to success in today’s competitive hospitality environment.

One very important figure managers and owners keep tabs on is the restaurant break even point. It’s the amount of sales needed for a business to offset their costs. They’re not losing money, they’re not making money. They’ve broken even.

Knowing your restaurant break even point gives you a financial polestar. Every decision you make, before profitability, should be geared toward hitting your restaurant break even point.

How to calculate break even point in a restaurant business (20) isn’t difficult. It’s actually quite easy if you’ve got all your bar inventory and sales numbers ready to go.

So let’s get to it!

How to Calculate Break Even Point for Restaurant

To calculate break-even point, you need to figure out when revenue exceeds costs.

The three values needed, then, are total fixed costs, total sales, and total variable costs. If you’re on top of your restaurant accounting game, you can find these in your restaurant profit and loss statement.

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.

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.
  • 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.

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:

  • Any credit card processing, merchant, or convenience fees

Again, these variable costs should be in your P&L.

Total Sales

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.

Break Even Point Formula Restaurant

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 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 point.

Average Break Even Point for Restaurant

In general, bars and restaurants won’t break even in their first year. For healthy operations, restaurant break even point is typically met in year 2 or 3. Years 3+ are when bars and restaurants begin making 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 restaurant spreadsheet as a restaurant break even point calculator.

Below, 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.

restaurant break even worksheet

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.

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