The break-even point is a key indicator for keeping a restaurant financially healthy. It's what lets you understand whether your business is turning a profit or not, as well as decide on actions to improve results.
To learn how to do the calculation and find out more about why this metric matters, keep reading this article!
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What is the break-even point?
The break-even point shows how much you need to sell for the restaurant to cover all of its costs and expenses.
In other words, it's the point where revenue equals spending, generating neither profit nor loss. In short: it's the moment when you're neither making nor losing money. From there on, your business starts to become profitable.
In the business world, this indicator is also known as the “breaking point”, “zero point”, or even “break even point”.
It's essential for financial planning and management, since it helps you set goals, understand whether the business is on the right track, and design strategies to reach greater profitability.
Also check out: Free COGS calculator
Why does this indicator matter for restaurants?
Running a restaurant efficiently goes far beyond serving delicious dishes, having a pleasant atmosphere, and offering good service.
To ensure the business stays financially healthy, it's essential to monitor certain metrics, among them the break-even point. In restaurant management, this indicator helps you:
Assess risks
By calculating your restaurant's break-even point, you know the minimum amount of sales you need to make in order to avoid a loss.
That way, you can track performance more easily, assess risks, and map out strategies to avoid debt and bankruptcy.
Make strategic decisions
This indicator also provides a solid basis for understanding profitability, adjusting prices, developing promotions, and optimizing your product mix.
This way, you ensure that every decision is aligned with the restaurant's financial sustainability.
Price correctly
Knowing your break-even point also helps you build more efficient pricing that's attractive to customers while at the same time ensuring that all costs are covered.
This is essential to stay competitive in the market while still generating healthy profit margins, contributing to the business's financial viability.
Control costs and expenses
Consistently tracking this metric also encourages efficient management of costs and expenses.
By identifying the elements that most affect profitability, you can put measures in place to optimize processes, negotiate with suppliers, reduce waste, and take other steps that help maximize profits.
Build financial resilience
The food service market is highly competitive and feels the impact of economic swings directly, so it's important to always be prepared for times of crisis and uncertainty.
By keeping an eye on the break-even point, you can anticipate financial challenges, adjust your strategies, and ensure your business survives.
Plan investments and expansion
Calculating the break-even point is also crucial for planning investments and expansion.
By understanding your restaurant's financial needs, you can accurately assess your ability to absorb new costs tied to expansions and operational improvements, for example.
This reduces financial risks and strengthens the foundation for your business's sustainable growth.
Also check out: Payback: understand what it is and learn how to calculate it
How to calculate the break-even point
Calculating the break-even point requires attention to detail and a deep understanding of the restaurant's finances. So, if possible, count on your accountant's help.
To run the numbers, you need to know:
- Net revenue: the total amount received from the sale of products and services;
- Variable costs: everything you spend on production that varies with sales volume (supplies, taxes, packaging, etc.);
- Fixed expenses: expenses that don't change with sales (rent, utility bills, payroll, etc.);
With that in mind, the formula for calculating the break-even point is as follows:
Break-Even Point = Fixed Expenses / Contribution Margin
So first you need to calculate the margem de contribuição. A fórmula é a seguinte:
Contribution margin = Revenue – Variable Costs and Expenses
Vamos considerar valores unitários, para simplificar o exemplo. Se você gasta R$ 50 para produzir um prato e vende por R$ 100, então:
Contribution margin = 100 – 50
Contribution margin = 50
Em seguida, você deve calcular quanto a margem de contribuição representa na receita. Basta fazer a divisão:
Contribution margin / Revenue
50 / 100 = 0,5
Finally, calculate the break-even point. Here, let's assume that fixed expenses are R$ 8.000:
Break-even point = 8,000 / 0.5
Break-even point = 16,000
Isso significa que você deve vender R$ 16.000 ou 160 unidades deste produto para alcançar o ponto de equilíbrio.
Accounting, financial, and economic break-even points
It's worth noting that, in the example above, we considered the accounting break-even point, which takes into account only variable and fixed costs and expenses.
But there are other types:
- Financial break-even point, which also takes into account asset depreciation and non-cash expenses:
Financial break-even point = fixed expenses and costs – non-cash expenses/contribution margin
- Economic break-even point, which uses opportunity cost and provides a view of the minimum acceptable profit:
Economic break-even point = fixed costs and expenses + opportunity cost/contribution margin
Leia também: Accounting for restaurants: understand how it works
Count on EPOC to manage your restaurant
Now that you know how to calculate your restaurant's break-even point, you're better prepared to track this indicator and think through growth strategies for your business.
As we've seen, there's a lot of information and data you need to gather to do this analysis. That's why having a reliable platform to manage your restaurant is essential.
A EPOC offers a range of solutions that not only make your operation more efficient, but also contribute to smarter management. If you want to see how it works in practice, Schedule a free demo and talk with our consultants.
