Break-Even Point: The Key to Profitability in Restaurants
Calculating the break-even point and tracking daily costs involves some fundamental calculations. These calculations help determine the sales volume or revenue level needed for the business to cover its costs and generate profit, ensuring effective cost control in restaurant management. Here are the details of these calculations:
1. Cost of Goods Sold (COGS) Calculation
The cost of goods sold (COGS) includes direct product costs and shows how much is spent on each item produced or sold by the business. To calculate COGS, the following formula is used:
COGS = Cost of Raw Materials Used + Packaging Costs + Other Direct Costs
Example:
- The total cost of ingredients used to make a pizza (flour, cheese, tomato sauce, etc.) = 1.52 USD (50 TL / 33)
- Packaging cost = 0.15 USD (5 TL / 33)
In this case, the cost per product is:
COGS = 1.52 USD + 0.15 USD = 1.67 USD
2. Overhead Costs Calculation
Overhead costs refer to the fixed expenses of the business, and they can be calculated on a daily, weekly, or monthly basis. These costs typically include:
- Rent: Monthly rent expenses for the premises
- Energy and Water Costs: Average monthly costs for electricity, water, and natural gas
- Salaries: Total monthly wages for all employees
- Subscription and Service Costs: Monthly fees for internet, phone, software systems, etc.
- Commission Fees: Sales commissions for online platforms
- Delivery Costs: Fees associated with delivery services
- Operational Expenses: Costs such as employee meals or meal card expenses
The total of these expenses reflects how much the restaurant spends daily to cover its overhead costs. To convert monthly overhead costs to daily expenses, the following formula is used:
Daily Overhead Costs = Total Monthly Costs / 30
Example:
- Monthly rent = 454.55 USD (15,000 TL / 33)
- Monthly energy costs = 151.52 USD (5,000 TL / 33)
- Monthly salaries = 757.58 USD (25,000 TL / 33)
- Subscription services = 30.30 USD (1,000 TL / 33)
- Commission fees = 75.76 USD (2,500 TL / 33)
- Delivery costs = 30.30 USD (1,000 TL / 33)
- Operational expenses = 30.30 USD (1,000 TL / 33)
Daily Overhead Costs = (454.55 + 151.52 + 757.58 + 30.30 + 75.76 + 30.30 + 30.30) / 30 = 50.98 USD
3. Break-Even Point Calculation
The break-even point indicates the minimum level of sales required to cover all costs. To calculate the break-even point, both the cost of goods sold and fixed overhead costs are considered.
The break-even point revenue formula is as follows:
Break-Even Revenue = Overhead Costs / (1 – Cost of Goods Sold Ratio)
The Cost of Goods Sold Ratio is calculated by dividing COGS by the sale price of the product.
For example, if the sale price of a product is 3.03 USD (100 TL / 33), COGS is 1.67 USD, and daily overhead costs are 50.98 USD, then:
- Cost of Goods Sold Ratio = 1.67 USD / 3.03 USD ≈ 0.55
- Break-Even Revenue = 50.98 / (1 – 0.55) = 113.29 USD
In this case, the business needs to generate 113.29 USD in daily sales to cover all costs.
Restaurants typically sell more than one product, so each product must have its own cost calculation. By determining the cost of goods sold for each item, and adding the overhead costs per product, businesses can accurately determine their total overhead and set appropriate pricing strategies.
4. Daily Income-Expense Tracking and Profitability Analysis
Qapera software allows businesses to track their daily income and expenses in real time, facilitating the management of overhead costs and break-even point calculations. This enables businesses to maintain effective cost control, review pricing strategies, and quickly take necessary actions.
With this simple yet effective calculation method, businesses can monitor their profitability in real time while managing their long-term costs sustainably.