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What's the importance of the break-even point?
One of the big reasons SME restaurateurs fail is cost, and one of the cost-related problems affecting the financial status of businesses is not knowing "their own break-even points". When restaurateurs don't know their own break-even points, they are likely to set their sales targets incorrectly. Likewise, they also plan their cost management and sales incorrectly. Therefore, "break-even points" are vital, and restaurateurs need to know about them.
Simply put, a break-even point means the point of sales at which you don't suffer a loss. It doesn't have you delving into your pockets, but you don't have a profit yet! Basically, it means income = expenses. So, it's important to know your restaurant's break-even point in order to plan and set sales targets, so you can turn a profit.
The formulas used to find the break-even point start with finding out your restaurant's expenses. Expenses are divided into two parts as follows:
Fixed costs or fixed expenses – These don't fluctuate based on sales, so you will always have to pay the same amount, no matter how high or low your sales are. Fixed costs include employee salaries (F/T), space rent (for fixed rate cases), depreciation and others.
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Variable costs or expenses that fluctuate based on sales – They include employee salaries (P/T), ingredient expenses, water fees, electricity fees, gas fees, etc.
| For example: You sell well after opening a delicious Isan restaurant in Lad Phrao for two months. Your approximate sales and expenses are as follows:
· Your average sales for the two months are 300,000 baht.
· Your average monthly ingredient cost is 32% (of sales).
· Your salaries for five full-time employees and one business owner totals at 80,000 baht.
· Your salaries for part-time employees averages 10,000 baht per month.
· Your water, electricity and gas expenses averages 27,000 baht per month.
· Your rent costs 55,000 baht per month.
· Your construction investment depreciation is 30,000 baht per month.
· Your miscellaneous expenses covering stationery, forms, flyers, menu media, maintenance work and supply runs averages no more than 15,000 baht per month.
Use all of the above figures to calculate the break-even point to determine how much your restaurant has to sell every month in order to survive.
The formulas are as follows:
300,000 baht sales – 32% food cost (96,000 baht) = 204,000 baht.
Then 204,000 – cost of labor, water, electricity, gas, rent, depreciation and miscellaneous: 204,000-217,000 = -13,000 baht. |
After you finish your calculations, you can see that, even though your restaurant's sales are good at 3000,000 baht per month, you still suffer a loss of 13,000 baht each month.
If you get a negative result like that after your calculations, you know the actual situation of your business, and you can better plan expense control and set targets to increase monthly income to eventually make a profit. And if you know your monthly and daily sales targets, you can create marketing strategies to boost your sales while keeping each cost item from exceeding standard values and ensuring that your restaurant turns a profit and never suffers another loss.
