What you must sell to break even

Ask an owner how the month is going and you usually get a feeling: busy, quiet, better than last week. Ask what they need to sell for the month not to lose money and there is normally silence. That figure — the break-even point — is a single number you calculate once, update occasionally, and from then on you always know, on the fifteenth, whether the month is going to work. It is the most useful piece of arithmetic in this course, and it takes about ten minutes.

➗ Splitting your costs in two

The calculation needs your costs sorted into two piles, which is the only part that requires judgement. Fixed costs happen whether you sell anything or not: rent, insurance, software, the accountant. Variable costs only exist because you sold something: the food and drink you served, and the hours you rostered to serve it.

Using the example month from topic 2, that split looks like this:

That last row is the whole engine. Every peso that comes through the door leaves thirty-four centavos behind after paying for the food and the labour it consumed, and those centavos are what has to cover the fourteen thousand of fixed costs. Once they have, everything after that is profit.

🎯 The number, three ways

Now divide: fixed costs of $14,000 divided by 34% gives about $41,200. That is what this restaurant has to sell in a month to end at exactly zero. Below it, it loses money; above it, each peso adds thirty-four centavos to the result.

Check it against the real month and you can see it works: sales of $50,000 leave $17,000 after variable costs, minus $14,000 of fixed costs, which is the $3,000 result from topic 2. The same figure becomes far more useful when you restate it in the units you actually manage by.

• In money per month: about $41,200. The headline figure, and the one to write on the wall.
• Per day: about $1,370. Divided across a thirty-day month — the number a manager can compare against a normal Tuesday.
• In covers: about 1,650. At an average check of $25. The restaurant served 2,000, so it crossed the line at around 82% of its actual volume.

That last framing is the one that changes behaviour, because it converts an accounting concept into something the floor understands: roughly the first fifty-five people through the door each day pay the bills, and everyone after them is the profit. Managers who know that number make different decisions about a slow Tuesday than managers who do not.

🔬 Making it honest

The version above treats all labour as variable, which is convenient and not quite true. A restaurant that opens its doors has managers, a minimum crew and hours it will roster whether twenty people come or eighty; only the hours above that flex with volume. Ignoring this makes your break-even point look lower than it really is, which is the flattering direction and therefore the dangerous one.

The more honest version is a small adjustment. Split labour into the part you would pay anyway and the part that flexes, and move the first into the fixed pile. If roughly half the labour in the example is fixed — $8,500 — then fixed costs become $22,500 and the variable share drops to 49%, leaving 51% per peso sold. Divide again and break-even is about $44,100: near $1,470 a day, or about 1,765 covers, which is 88% of what the restaurant actually did. Both versions give the same $3,000 result at $50,000 of sales, as they must — but the second tells you the truth about how much cushion you have, which is three thousand pesos of it.

Two more refinements worth knowing without over-engineering it. Break-even moves, so recalculate it whenever rent, wages or your main supplier prices change materially — a couple of times a year is usually enough. And if you have a second service with a very different structure, delivery being the obvious case, its commissions make its variable share higher, so a peso sold there contributes less than a peso sold in the room. That is a real effect, it belongs to the delivery course in detail, and it is enough here to know that not all sales carry the same weight against your fixed costs.

🛠️ What the number is actually for

Once you have it, break-even quietly answers questions that were previously arguments, which is why it earns its place in a course about reading reports.

• Is it worth opening on Mondays? Compare a normal Monday's sales against the daily figure — if it is consistently below, that day is being paid for by the rest of the week.
• What does this promotion have to bring in? A discount lowers the contribution per peso, so it has to raise volume enough to compensate. Now you can work out how much.
• Can I afford this hire, or this rent increase? Both go into the fixed pile, so both raise the line. Divide the increase by 34% and you get the extra sales you need — a $1,000 rise needs about $2,940 more sales a month.
• How bad is the quiet season really? You know your low months; comparing them against the line tells you how much cushion the good ones need to build.
• Should I take this catering job at that price? If it covers its own variable costs and adds anything to the fixed pile, it helps — which is often not obvious from the margin alone.

The habit that makes it stick is small: put the daily figure somewhere the manager sees it, and once a week compare it against what actually happened. It costs nothing, it turns an abstract number into a working target, and it means a bad stretch gets noticed in week two rather than in the following quarter — which, as the next topic argues, is the entire difference between reporting and managing.