When Does Your Restaurant Start Making a Profit Fixed vs. Variable Expenses and Breakeven Analysis

As a business coach and advisor, one of the most important conversations I have with restaurant customers revolves around understanding what it takes to make a profit and how to price their menu by analyzing their cost structure—specifically, distinguishing between fixed and variable expenses—and how that affects their breakeven point. Whether you’re running a busy restaurant, a construction company, or a retail shop, mastering this concept can be the difference between survival and sustainable success.

Let’s break this down with clarity and real-world examples.

What Are Fixed and Variable Expenses?

• Fixed Expenses are costs that remain constant regardless of your business activity level. They do not change with sales or production volume.
• Variable Expenses fluctuate in direct proportion to your revenue or output. More sales revenue or customers means more variable costs.

Understanding the balance between the two helps you:

• Plan more accurately
• Price your menu items effectively
• Make better staffing and purchasing decisions
• Know exactly what it takes to break even—that is, to cover your expenses without incurring a loss.

Restaurant Industry

Variable Expenses:

• Food and beverage costs
• Liquor costs
• Wages paid for servers, bartenders, chefs, dishwashers
• Cooking fuel (e.g. propane, fry-oil)
• Linen service and paper goods
• Packaging for take-out service
• Merchant account fees

Fixed Expenses:

• Lease on restaurant space
• Equipment lease (e.g. ovens, walk-ins)
• Business insurance premiums
• Manager’s salary
• Utility bills (e.g. telephone, electricity)

Breakeven Example: Let’s say your monthly fixed costs are $25,000/month or $300,000/year and your average meal ticket is $45 with a $20 variable cost leaving you with a margin of $25/cover (56%).  You would need to serve 12,000 meals per year, average 1,000 meals per month or 231 per week.  If your restaurant is open five days/week, that’s 46 covers per day.  If you have 20 seats in your restaurant, you will need to turn your tables 2.3 times.

Breakeven Revenue Formula

The breakeven point in terms of revenue is calculated as follows:

Breakeven Revenue = Fixed Costs / Contribution Margin

$300,000 / .5556 = $539,956

You will need to generate $539,956 in revenue to break even and anything beyond that is profit.

Here’s the breakeven analysis in graph format:

• The blue dashed line shows your fixed overhead.
• The red line is your total cost (fixed + variable).
• The green line is your revenue.
• The gray dashed line marks the breakeven point, which is $539,956 in revenue.

This chart helps visualize exactly how much you need to bring in before turning a profit.

Why This Matters

When you clearly define your fixed and variable expenses, you’re better positioned to:

• Adjust menu pricing intelligently
• Manage payroll strategically
• Negotiate purchasing
• Scale your business with intention

Breakeven analysis isn’t just a math exercise—it’s a decision-making compass. When you know your breakeven point, you know exactly what you need to sell, build, or serve each month just to stay afloat—and how much more to hit your profit targets.

Final Thought

Every dollar you bring in above your breakeven point contributes directly to your profit—but only if you manage your variable costs wisely. Understanding this relationship helps you shift from reactive to strategic business operations.

If you’re unsure how to calculate your breakeven point or how your cost structure stacks up, let’s talk. I help construction, retail, and restaurant owners like you take control of their numbers so they can focus on growth with confidence.