How the break-even formula works
Break-even is the sales figure where your contribution exactly covers your fixed costs. Below it, you're funding the restaurant out of reserves. Above it, every extra dollar of sales keeps its full contribution, because the fixed costs are already paid.
The bottom half of that formula is your contribution margin ratio: what's left of each sales dollar after the costs that move with trade. If food, beverage and casual wages together take 62 cents of every dollar, the other 38 cents goes towards rent, salaries and everything else that arrives regardless.
A worked example
The calculator above opens with this example. A restaurant has $9,500 a week in fixed costs: $2,500 rent, $3,800 of salaried wages, $1,200 for the owner, and $2,000 of utilities, insurance, loan repayments and other overheads. Food and beverage run 32% of sales, casual wages 26%, and card fees and packaging another 4%. Variable costs total 62%, so the contribution margin is 38%.
$9,500 ÷ 0.38 = $25,000 a week. At an average spend of $45 that's about 556 covers a week, or 93 a night across six nights. On $30,000 of actual sales, the restaurant makes $1,900 a week before tax and has a 17% margin of safety. A bad month that drops sales by a sixth would take it straight to zero.
Splitting fixed and variable costs
The calculation is simple. Getting the split right is where the judgement is.
- Fixed: rent and outgoings, salaried staff, your own wage, insurance, loan and equipment lease repayments, software subscriptions, accounting fees, the standing charges on utilities.
- Variable: food and beverage, casual staff rostered up and down with trade, card and delivery-app fees, packaging, consumables.
- Labour sits in both. Your head chef and manager are paid whether you do 40 covers or 140. The extra floor staff on a Saturday aren't. Split the wage bill instead of forcing it into one column.
If you're not sure where your variable costs sit, the restaurant profit calculator works out food and labour as a percentage of sales from a week of figures.
Three things break-even tells you that a P&L doesn't
Whether a quiet night is worth opening
The rent arrives whether you open on Tuesday or not, so the question isn't whether Tuesday made a profit. It's whether Tuesday's sales covered Tuesday's variable costs. If it contributed anything at all towards fixed costs, closing makes you worse off.
What a discount really costs
At a 38% contribution margin, a 20% discount doesn't cost 20% of your profit. It takes 20 cents out of a 38-cent contribution, more than half. To earn the same contribution you'd need roughly twice the covers. The discount box in the calculator shows the exact figure for your numbers.
How much room you have
The gap between your actual sales and break-even is your margin of safety. Seasonal businesses need a much bigger cushion than they think: a 17% margin in summer can disappear in a single slow month. Our guide to restaurant cash flow management covers how to plan for it.
Mistakes that make break-even look better than it is
- Leaving out your own wage. If you're not paying yourself a market rate, the business isn't breaking even. It's being subsidised by you.
- Using last year's food cost. If food cost has crept up four points, break-even in the example above rises by nearly $3,000 a week.
- Forgetting loan repayments. They aren't an expense on the P&L, but the cash has to come from trading all the same.
- Including GST or sales tax in sales. Use sales excluding tax, or break-even will look lower than it is.
- Calculating it once. Rent reviews, wage rises and supplier increases all move break-even gradually. Recalculate every six months.
For the full method, including how to read the result, see how to calculate your restaurant's break-even point. If rent is the cost pushing your break-even up, what percentage of sales rent should be sets out the benchmarks.
Frequently asked questions
How do you calculate a restaurant's break-even point?
Divide fixed costs by your contribution margin ratio, which is 100% minus variable costs as a percentage of sales. $9,500 of weekly fixed costs at a 38% margin gives $25,000 a week.
Are wages a fixed or variable cost?
Both. Salaried staff are fixed; casual staff rostered to demand are variable. Split them.
Should I include my own wage?
Yes, at a market rate for the work you do. Otherwise break-even is understated by whatever you're not paying yourself.
What is a good margin of safety for a restaurant?
As a rule of thumb, aim for actual sales at least 20–25% above break-even in your average week. Less than 10% leaves almost no room for a slow month, a rent review or a key staff member leaving.
How does menu pricing affect break-even?
Directly. Lowering food cost from 32% to 29% lifts the contribution margin by three points, which cuts break-even by around $1,800 a week in the example. The menu price calculator shows what price each dish needs to hit your target.