Restaurant Breakeven Point: How to Know If You’re Making Money
Understanding the Breakeven Point is essential for any
restaurant owner or manager. It helps you determine the minimum sales needed to
cover your costs — and whether you're making a profit, incurring a loss, or
simply breaking even.
What Is Breakeven in Restaurants?
The breakeven point is when a restaurant’s total revenue
equals its total costs. There is no profit or loss — just enough income to
cover all expenses.
Key Concepts
1. Contribution Margin Ratio (CM%)
This is the percentage of sales remaining after subtracting
cost of sales and variable costs. It shows what’s left to cover fixed costs and
generate profit.
Formula:
Contribution Margin = 100% - (Cost of Sales % + Variable Costs %)
Example:
Cost of Sales = 30%
Variable Costs = 10%
Contribution Margin = 100% - (30% + 10%) = 60%
2. Fixed Costs
These are costs that must be paid even if the restaurant
isn’t operating. Examples include:
- Management salaries & benefits
- Crew salaries & benefits
- Repairs & maintenance
- Utilities (electricity, gas, water)
- Rent
- Insurance
- Operation supplies
- Depreciation (equipment/tools)
- Amortization (building & decoration)
3. Variable Costs
Costs that vary with sales volume and disappear if the
restaurant is closed:
- Condiments
- Packaging
- Marketing contribution
- Delivery charges
Breakeven Sales Formula
To calculate the breakeven sales:
Breakeven Sales = Fixed Costs / Contribution Margin
Example:
Fixed Costs = 45,000 SAR
Contribution Margin = 60%
Breakeven Sales = 45,000 / 0.60 = 75,000 SAR
This means the restaurant must generate 75,000 SAR in sales to break even.
Example: Restaurant Performance Analysis
|
Item |
Amount (SAR) |
Notes |
|
Actual Net
Sales |
100,000 |
|
|
Breakeven
Sales |
75,000 |
|
|
Cost of Sales |
30,000 |
30% |
|
Gross Profit |
70,000 |
70% |
|
Management
Salaries |
10,000 |
10% |
|
Crew Wages
& Benefits |
12,000 |
12% |
|
Repair &
Maintenance |
2,000 |
2% |
|
Operation
Supplies |
1,000 |
1% |
|
Utilities |
5,000 |
5% |
|
Insurance |
2,000 |
2% |
|
Vehicle Costs |
2,000 |
2% |
|
Marketing
Contribution |
4,000 |
4% |
|
Rent |
12,500 |
12.5% |
|
Depreciation |
4,000 |
4% |
|
Amortization |
2,000 |
2% |
|
Total Fixed
Costs |
52,500 |
52.5% |
|
Total
Variable Costs |
34,000 |
34% |
|
Total
Expenses |
86,500 |
86.5% |
|
Net Operating
Income |
13,500 |
13.5% |
Key Takeaways
- Breakeven helps you understand minimum sales required to
avoid loss.
- Contribution Margin is key to analyzing profit potential.
- High fixed costs mean higher breakeven, so controlling fixed expenses is
crucial.
- Profit is achieved only after breakeven is reached.