If you plan in starting a restaurant business in this week video I talk about one of the fundamental exercises you need to do. The break even point. This exercise will let you know how many customers you will need to serve per month to generate profit.
This video was created for the 30 Minutes Restaurant Marketing website, where every week I post a weekly restaurant marketing action plan that any restaurateur can perform in less than 30 minutes. You can see all videos here: http://30minutes.marketing/
If you were interested in this video and are planning in starting a restaurant, my video on How to Create a Restaurant Marketing Plan will also help you defining a marketing strategy for your restaurant. You can watch it here:
Hello and welcome to this week 30 minutes restaurant marketing, are you thinking about Opening a Restaurant? Learn the easy way to calculate your restaurant break even point.
The break even point will tell you what is the number of persons you have to serve in order to pass from making a loss to making profit. In this video I will explain it and show you an example.
First you need to calculate your costs. Costs can be fixed or variable. Fixed are the ones you always need to pay and the variable vary depending on how many people you serve at your restaurant.
Let’s start by your fixed costs. These are the ones that don't increase or decrease no matter how many customers you receive in your restaurant.
Examples of fix costs would be Rent, Insurance, Interest in money you borrowed from the bank, manager salary etc…
These are the costs that you need to pay no matter your restaurant has customers or no.
This Total Fixed Cost is easy to calculate as you just need to sum all your fixed bills that won't change its amount no matter how many people you serve at your restaurant. Let's think that for our example that the fixed total costs are $6,000.
Then comes the variable costs...
These are the ones related to the number of customers you serve in your restaurant. More customers’ means that you will need more food to serve, more beverages for your customers to drink, more tablemats, more servers, etc...
As they are variable depending on the number of people you serve, you need to calculate how much variable cost you have per person served. Let's think that on average one person that dines at your restaurant spend $15, how much is the variable cost of it? Meaning from that $15 your client paid, how much of it you need to use to pay your food suppliers, servers, paper napkins etc....
Let’s think you need to use $6 from the $15 you sold to pay your variable costs. Meaning that after you paid your variable cost you still keep $9 per customer.
So now you can easily calculate how many customers you need each month to break even. You just need to divide your fixed cost by the money you keep from each customer.
In my example would be. I have a fixed cost of $6,000. Then I subtract from the average check per person with its variable cost. Afterwards I divide the 6,000 per 9 and I get 667.
667 customers per month is my breakeven point. Meaning that if I serve 667 persons in a month I won't be losing or making money.
In case I make 668 covers, one more cover than my breakeven, I already made $9 of profit. Because with the first 667 customers I made the money to pay my fixed costs, after that, for any additional customer that comes in my door I make $9 of profit.
The reason is I no more need to spend that $9 dollars to cover my fixed costs. They already been paid by my first 667 customers.
Not that difficult right? This is the first math exercise I ask people to do when they thinking if they should open a restaurant or not.
Hope it helps and if you want to listen to future videos like this one please like, comment or share below.