Restaurant profitability: find your break-even point and improve it

How do you know if a restaurant is profitable?

Many restaurant owners only see their results once a year, when the accountant presents the year-end accounts. By then it is too late to fix anything. With three or four numbers tracked every month, you see problems coming: food cost creeping up, a rota that is too heavy for the number of guests, a Monday service that costs more than it brings in.

This guide is part of our Run a restaurant series. For the food cost of a dish, markups and recipe cards, read our dedicated guide: food cost and menu pricing. Here we look at the restaurant as a whole. Amounts are in euros and the legal points refer to France.

Fixed costs and variable costs: how do you tell them apart?

Everything starts with this split. A fixed cost is paid whether the dining room is full or empty. A variable cost goes up when you sell more. Take last month’s invoices and statements, and put each expense in one of the two columns.

Some costs are a bit of both. Energy, for example: the cold room runs every day, but ovens work harder on busy nights. Do not chase precision to the cent. Put each cost where it weighs most, and keep the same rule month after month so you can compare.

The contribution margin ratio

Once you know your variable costs, express them as a percentage of sales excluding VAT. If ingredients are 30% of sales and other variable costs 5%, you keep 65% of each euro sold to pay fixed costs, then to make a profit. That 65% is your contribution margin ratio. It is the key number for the next calculation.

Always work excluding VAT: the VAT you collect on sales is not yours, it goes to the tax office.

How do you calculate a restaurant’s break-even point?

The formula fits on one line: break-even point = fixed costs ÷ contribution margin ratio. Here is a full example, with a fictional restaurant and made-up numbers for illustration.

That last number speaks to the whole team: below 43 covers a day on average, this restaurant loses money; above it, each extra cover leaves €16.25 (€25 × 65%) towards profit.

When in the year do you break even?

Over a year, the same restaurant has €216,000 of fixed costs, so an annual break-even of €332,308. If it makes €400,000 of sales spread evenly, it passes break-even around day 303 of the year, at the end of October. Everything it sells after that is profit before tax. If your trade is seasonal, do the maths month by month: a very strong summer can hide a loss-making winter.

What is prime cost and why track it?

Prime cost adds up a restaurant’s two biggest costs: ingredients used and the total cost of staff (wages, contributions, extra hours). It is expressed as a percentage of sales excluding VAT.

Fictional example: in one month, €12,100 of ingredients used and €14,500 of staff costs, for €38,000 of sales. Prime cost = (12,100 + 14,500) ÷ 38,000 = 70%. That leaves 30% for rent, energy, insurance, loans and profit.

Why this number rather than another? Because these are the two costs you act on every week: orders and rotas. A restaurant can balance a high food cost with a lean team (simple cooking, little table service), or the other way round. Prime cost looks at both together.

What target should you aim for?

You will read many “benchmarks” online. Be careful: they ignore your rent, your location and your concept. The right target is the one that leaves enough to pay your other costs and make the profit you want. Work it out once with your accountant from your real accounts, then track the gap every month.

For the ingredients side, the tracking method (stock count, actual usage) is in our guide to restaurant inventory management. For the staff side, see restaurant staff scheduling.

How do you read your restaurant’s profit and loss account?

In France, every trader must produce annual accounts at the end of each financial year: a balance sheet, a profit and loss account and notes (article L123-12 of the French Commercial Code). Under the simplified real regime, the notes are not required. Your accountant prepares them, but you need to be able to read them. The profit and loss account is the most useful day to day.

• Sales: your takings excluding VAT. Compare them with last year, month by month if you can.
• Purchases used: purchases adjusted for the change in stock. Divided by sales, this is your actual food cost.
• External charges: rent, energy, insurance, fees, subscriptions, advertising. Easy savings often hide here.
• Wages and social charges: together with purchases used, they make up your prime cost.
• EBITDA (EBE in France): what the business generates before depreciation, interest and tax. Banks and buyers look at this first.
• Net result: what is really left at the end.

Ask your accountant for an interim statement every three or six months, or better, a simple monthly dashboard. A few lines are enough: sales, covers, average spend, food cost, staff cost, prime cost. You will spot the month that goes wrong straight away.

Here is a message to send your accountant to get started:

Hello,

I would like to track the restaurant’s profitability every month. Could you help me work out my break-even point from last year’s accounts, and tell me what food cost and staff cost I can aim for to keep a healthy margin?

I would also like an interim statement every quarter.

Many thanks.

Which numbers should you track every week and every month?

No need to follow twenty figures. Here is a simple dashboard to fill in, in a notebook or a spreadsheet.

The last line may look odd in a financial dashboard. Yet your rating and reviews often warn you before footfall changes: a run of reviews about waiting times or a dish shows on Google before it shows in the till.

Which levers improve a restaurant’s profitability?

There are three ways to improve the result: sell more, earn more on each sale, or spend less on fixed costs. Rank the levers by effort and effect.

1. Food cost

In our example, bringing ingredients down from 30% to 28% of sales lowers break-even from €27,692 to €26,866 a month. Start with your best sellers: recipe card up to date, portions respected, waste tracked. The full method is in the guide to food cost and menu pricing, and building a more profitable menu is covered in restaurant menu design.

2. Staff scheduling

Compare scheduled hours with covers, service by service. A quiet service with the same team as a busy one is expensive. Matching the rota to the week’s bookings is often the quickest lever.

3. Average spend

One more drink, a starter to share or a dessert per table quickly changes the result, with no extra fixed cost. See our guide to increasing average spend.

4. Filling quiet services

In the example, each cover above break-even leaves €16.25. Two more covers per trading day bring in €845 more a month. A themed evening, a lunch menu that is easy to find on Google or a message to regulars can be enough.

5. Fixed costs

Renegotiate your contracts once a year: insurance, energy, subscriptions, card terminal. List every monthly direct debit: there are often one or two you no longer use.

• I know my fixed costs for the month.
• I know my variable cost rate.
• I know how many covers a day I need to break even.
• I track my prime cost every month.
• I have picked one lever to work on this quarter.

The restaurant owner’s guide

Open, run, grow: each stage has its full guide and detailed guides, with their reading time.

This guide for your trade

• Restaurants
• Bars
• Bakeries

Go further

• Run a restaurant: the complete guide
• Food cost and menu pricing
• Restaurant inventory management
• Increase your restaurant’s average spend
• Analyse your local competitors