How to Calculate Your Restaurant's Break-Even Point

There's a number that sits underneath every other number in your business: the revenue you have to generate before you keep a single dollar. Below it you're funding the restaurant out of reserves. Above it, every additional dollar behaves very differently from the ones that came before.

Most operators have never worked it out. It takes about fifteen minutes.

Split your costs in two

Break-even analysis depends on one distinction: which costs move with sales, and which don't.

Variable costs rise and fall with revenue — food, beverage, and the portion of wages that flexes with trade. Sell nothing and they approach zero.

Fixed costs arrive whether you open or not. Rent, insurance, salaried management, loan repayments, subscriptions, the standing charge on your utilities.

The calculation

Three steps.

1. Contribution margin ratio. Take your variable costs as a percentage of revenue and subtract from 100%. If food and variable labour together run 62%, your contribution margin is 38%. Every dollar of sales leaves 38 cents toward fixed costs.

2. Total your fixed costs for the period. Weekly is most useful for a restaurant — it matches how you already think about trade.

3. Divide.

Break-even revenue = fixed costs ÷ contribution margin ratio

Fixed costs of $9,500 a week at a 38% contribution margin gives $25,000. That's the number.

Convert it into something you can see

Weekly revenue is abstract. Covers are not.

Divide break-even revenue by your average spend per head, then by the days you trade. At $25,000 with a $45 average spend, that's 556 covers a week — 93 a night across six nights.

Now it's a number your floor staff would recognise. You can look at a Tuesday and know immediately whether it paid for itself.

Why the number is often uncomfortable

The common reaction to a first break-even calculation is that it looks too high. Usually it's correct and something else is wrong.

Fixed costs have crept. Subscriptions, a second manager hired during a growth phase, a lease escalation — each defensible alone, collectively significant. Every dollar of fixed cost raises break-even by nearly three at a 38% margin.

Contribution margin is thinner than assumed. If food cost drifted from 30% to 34%, your margin fell four points and break-even rose by roughly $2,600 a week. This is the mechanism behind margins quietly disappearing without any obvious cause.

The owner's wage was left out. If you haven't included a market-rate salary for yourself, break-even is understated by whatever you're not paying yourself. The business isn't breaking even; it's being subsidised by your unpaid labour.

What it tells you that a P&L doesn't

Which nights to keep open

Once you know fixed costs continue regardless, the question for a marginal night changes. It isn't "did Tuesday make a profit" but "did Tuesday's revenue exceed its variable costs." If it contributed anything toward fixed costs, closing makes you worse off — the rent arrives either way.

What a discount really costs

At a 38% contribution margin, a 20% discount doesn't cost 20% of profit. It removes 20 cents from a 38-cent contribution — over half. To stand still you'd need roughly double the covers.

How much cushion you have

The gap between actual revenue and break-even is your margin of safety. Turning over $30,000 against a $25,000 break-even means a 17% drop wipes out your profit entirely. Given normal seasonality, that's tighter than it sounds — and it's why seasonal cash flow takes down businesses that look fine in summer.

Recalculate twice a year

Break-even isn't static. Rent reviews, wage increases, supplier movements and menu changes all shift it, and they shift it gradually enough that nobody notices until the annual accounts arrive.

Put it in the diary for every six months. Fifteen minutes, and you'll know whether the ground has moved under you.