The formula
Break-even sales = Total fixed costs / Contribution margin ratio
Contribution margin ratio = 1 – Variable cost %
Break-even guests = Break-even sales / Average check
Why the formula divides by the contribution margin instead of the full check: a guest does not pay your rent with their whole check. If 62 cents of every sales dollar leaves with the guest as food, hourly labor, disposables and card fees, only 38 cents stays behind to pay rent, salaries and insurance. Dividing fixed costs by that 38% gives the sales level at which the small leftover slices add up to the whole fixed bill.
How to use it, with an example
- Add up one month of costs that do not move with sales: rent, salaried staff, insurance, fixed utilities and subscriptions, and the rest. Leave hourly labor out of this list, it belongs in variable costs.
- Take your average check from your POS reports, not from your three best Fridays.
- Set variable costs as a percentage of sales: food and beverage cost, plus hourly labor, disposables and card fees. For most full-service restaurants the total lands between 58 and 70%.
- Read the monthly sales you need, then the guests per day. The daily guest number is the one to pin in the kitchen, because a month is too long to steer by.
Worked example: A restaurant has monthly fixed costs of $9,000 rent, $8,500 salaried staff, $1,200 insurance, $1,800 fixed utilities and $2,500 of other fixed costs, a total of $23,000. Variable costs run at 62% of sales, so the contribution margin is 38%. Break-even sales are $23,000 / 0.38 = $60,526 a month. At a $32 average check that is 1,892 guests a month, or 64 guests a day across 30 open days, about $2,018 of sales a day. Guest 65 on any given day is where profit starts. The calculator above is prefilled with these numbers.
Break-even is only useful if the inputs stay current, and the fastest-moving input is the sales side. When the POS and the accounting sit in the same system, average check and daily covers are live figures rather than last month’s memory. That is the practical case for running Odoo for Restaurants with the Odoo Accounting and Finance module: the fixed cost stack and the sales line come from the same books, so the break-even target moves when your real costs do.
Common mistakes
- Dividing fixed costs by the average check and stopping there. That ignores the cost of serving each guest and understates the guests needed by a third or more. The contribution margin step is the whole point of the calculation.
- Putting hourly labor in fixed costs, or in both. Salaried staff are fixed. Hourly staff scale with trade and belong in the variable percentage. In both lists, they get counted twice and the target becomes impossible.
- Using the busiest month’s average check. Break-even is a survival number. Build it on an average month, then treat strong months as the ones that pay for the weak ones.
- Forgetting the quiet fixed lines. Loan payments, software subscriptions, licenses spread across the year, the accountant. The full fixed bill is what the contribution has to cover, and our guide to choosing the right system in how to choose a restaurant POS system shows how often small monthly fees hide in that stack.
- Treating every day as equal. Sixty-four guests a day is an average, not a daily law. You might need 35 on a Tuesday and 130 on a Saturday. Plan the week against the target, not each day,.
FAQs
How do I calculate break-even for a restaurant?
Add up your monthly fixed costs, work out your contribution margin (100% minus your variable costs as a percentage of sales), and divide the fixed costs by that margin. Fixed costs of $23,000 with a 38% contribution margin give break-even sales of about $60,526 a month. Divide by your average check to get the guests you need.
What is a good contribution margin for a restaurant?
Full-service restaurants typically keep 30 to 40% of each sales dollar after variable costs. Quick-service concepts often keep 40 to 55%, because labor per guest is lower.
Should salaried managers count as fixed or variable?
Fixed. You pay a salary in a quiet week and a busy week alike, and that is the test: if the cost does not change when covers change, it is fixed. Hourly wages, which you schedule up and down with expected trade, are variable.
How many covers a day does a small restaurant need to break even?
It depends entirely on your fixed costs and check size, which is why the honest answer is a calculation, not a benchmark. A small room with $23,000 of monthly fixed costs and a $32 check needs roughly 64 guests a day. Halve the fixed costs and the same room needs about half the guests.
Does break-even include owner salary and loan payments?
It should. If the owner works in the business, a real salary belongs in fixed costs, or the restaurant is breaking even only because the owner is subsidising it. Loan payments are a cash obligation every month, so most operators include them in the fixed stack for a break-even they can actually live by.
How often should I recalculate my break-even point?
Whenever a fixed cost changes: a rent increase, a new salary, a new loan. And at least quarterly, because variable costs drift with supplier prices and wage rates.
