Break Even

Hey there Chefs,
I am wondering what your various menus break even points are and what are some of your dishes unit contributions are. More specifically, what I would really like to know is what the unit contribution is on your best selling menu item and what its break even point is.
“When you’re out of cash you're out of the game”__Dennis H. Ferguson
- Professor, Cornell School of Hospitality Management
Culinarily Yours,
Chef Mars

By Jonesg (Jonesg) on Monday, December 13, 2004 - 02:33 am: Edit

Hi Chef,
Many years back I sat down with my accountant and calculated the break even point, what I wanted to know was the minimum daily sales number to break even. The individual(unit) numbers didn't matter. Its similar to sales velocity reports, at some point its too detailed. It doesn't matter.
We accepted losses on some items, loss leaders which were made in limited quantity, merely as a draw.
Now in catering, I operate pretty much the same way but with minimum's. For example a menu will say "prices based on minimum of 50pp", that leaves me the option of charging more for 20pp.
The food cost I keep down to 27%. On some items its much lower, set appetizers and petite fours are lower in food cost but then theres the higher labor, it balances out.
I have a roast sirloin strip party coming up, ea strip costs $50 and I'll have to get at least $200 per strip.

The last party I did with sirloin I cooked 4 strips (plus a pig), they ate 3 , my food cost was less than $1000 and we charged over $4K.
I gave them the leftover strip. I could anaylise the per plate cost if I wanted to but why bother.

I don't bother to calc the break even point in any of this because it wouldn't serve any purpose. At that point it might just be analysis paralysis.

Unit cost, doing individual retail (cafe sales) are probably more accurately calculated with end of month numbers. Regards

By Jonesg (Jonesg) on Monday, December 13, 2004 - 02:44 am: Edit

You might find this usefull.

http://www.foodreference.com/html/artfoodcost.html

By Chef_Mars (Chef_Mars) on Monday, December 13, 2004 - 08:49 am: Edit

Thanks very much for taking the time to reply.
I understand break even and unit contribution very well but I am curious to what the level of understanding is with the other chefs that use this forum. For my part I consider break even critical because why create an expense if you cannot at minimum, reach the break even point where you recover your investment (costs). You would not buy a stock for $10/share and not have an expectation of it being able to be sold for more than that in the future would you? How else can you price a new menu item I would ask without getting a feel for how many you have to sell to make it worth while and then considering is that sales number reachable? Granted some items will be loss leaders, but no matter how many of those you sell you only lose more money...volume never compensates. Food Cost is only part of the pricing puzzle. If you want to add another walk-in, how many additional items will you have to sell to pay for that? If it is millions of additional menu items then who is going to pay for the walk-in? If your price of tenderloin goes up, how many more do you have to sell to maintain that dishes profit contribution?
Besides being able to lead the kitchen brigade and being able to "out cook" anyone else under your roof, a chef has to know how to stay in business...it is generally the cash flow that keeps the vendors delivering, lights on, employees paid and the IRS away.
I am not surprised that you are aware of break even and its implications. Over the years I have been impressed by many of your insights on this forum. Unfortunately I expect few others on this forum will actually understand what it is or how fundamentally important it is to being a qualified chef in the sense that maybe your face is not on the cover of Food Arts magazine but your owners/investors, customers and employees are happy and you know how to run an ongoing business entity.

By Foodpump (Foodpump) on Monday, December 13, 2004 - 09:52 am: Edit

Your musings are one of the reasons why my partner and I decided not to invest heavily in an upscale a'la carte business but rather a catering business.
Overhead is still about the same as a'la carte, but labour can be easier controlled. We also have the advantage of knowing the absolute minimum amount of business that we'll do for the month--guaranteed with a 20% paid deposit.

After over 20 years in the food biz, I'd have to say that catering has a slight advantage over a'la carte- by about one headache fewer.

By Dpconsu (Dpconsu) on Monday, December 13, 2004 - 11:11 am: Edit

I tend to agree with foodpump, as I have operated both a catering company and a high end ala carte restaurant, the hours catering are longer but the end profit is better.I used to gauge what ny clients could pay and charged those wealthy enough out the ying yang, but then I was based in Monaco where the population of rich idiots is pretty high!
As for the original question about break even, yes it is very important to know what your total fixed and non fixed overheads are and the how much you need to bring in to cover that and then recalculate the minimum inventory neede to be held on hand to cover those sale needs. A long standing rule of thumb has always been 1/3 food 1/3 labor and the remaining third should cover fixed overheads and leave some for reinvestment and profit.

By Jonesg (Jonesg) on Monday, December 13, 2004 - 01:17 pm: Edit

"I used to gauge what ny clients could pay and charged those wealthy enough out the ying yang,"

heheh, we do similar in Boston, its a cat n' mouse game, trying to figure out their budget without asking, we put different packages in front of them to get a feel, if we already know they have deep pockets then we go straight to the high end items, they DO get what they pay for.

"A long standing rule of thumb has always been...."

I agree but am always wary of rules of thumb. They're only safe as a starting point.

Foodpump, as for stress, its self generated, it has nothing to do with the type of business , the bosses or the client. We do it 100%.
I know it seems otherwise but thats the lay of the land, we have choices and not making a choice is the decision itself.

By Chefmanny (Chefmanny) on Thursday, December 16, 2004 - 07:35 am: Edit

When you say "break even point" of a menu or menu item what exactly do you mean?????
Do you mean of a menu item which takes several months or even years at time to roll out to market or a regular independent restaurant?????
Because it makes a big difference!
If you cost and price a menu item such as a special, there should be no issue in BE point.
The question is nebulous at best.

By Chefmanny (Chefmanny) on Thursday, December 16, 2004 - 12:14 pm: Edit

I just went to the site and saw the example you showed and the following scenario......:

"In this hypothetical situation, your manager has accepted your recommendation of $7.50 as the selling that will best maximizes the new appetizer's total contribution to the company. He then throws you a surprise and asks you how many we would have to sell to make a profit (essentially, where is the break even point)?

This hypothetical situation is confusing at best for several reasons, first let's say you find an item you want to place on the menu or as a special, you know what it will cost you, today, you buy the food today, you figure out your selling price today and, you sell it today.
The break even point is when you sell enough "whatever dish" you are selling to cover the food cost and a % of the fixed and variable costs associated with the business.
Now, let's say tomorrow the cost of this item goes up and you are stuck with the price printed on the menu, unless it's on a "specials" menu or a menu you can re-write daily, your break even point changes, and in this business today product and variable costs are too dynamic to ascertain a real break even point, even if you are McDonalds or BK!
So on that example the break even point can be a different number daily!
I have never been one for percentages and financial analysis, the bottom line is $$$$$$, how many did you or I take to the bank today!
I think Chefs are better served by managers or owners telling them how much it costs to run an operation on a daily basis and this way the Chef or whoever figures out selling prices can price accordingly. How many times do you hear, "well we want a 35% food cost and labor at 40%", that does not tell me how much of the other 25% is spent on what!
I always priced food on what the market would bare and value, people don't mind paying as long as they don't saeem to be getting screwed in the process. Steak and lobster might be fine to sell but not a huge profit maker, a shrimp and scallop strudel in a lobster-sage sauce, wrapped in phylo dough sound "expensive" and it looked it but it has 2 ounces total of protein and the profit margin is 68-72% depending on how much seafood you could use from trimmings and residual usage!
I think break even points are vague in food costs at best. In business, it's a different story.

By Jonesg (Jonesg) on Friday, December 17, 2004 - 04:59 am: Edit

"and in this business today product and variable costs are too dynamic to ascertain a real break even point"

Thats why the only accurate hard numbers are after-fact weekly/monthly etc.

I look at it very simply, because I'm simple.

If food cost is 2.50 and it sells for 1.00 then I need to sell 1 to pay for that one which sold plus make the profit ON THAT ONE ONLY .
Then I look at the total inventory of that item and calc how many it yields. Lets say I have 100 in stock. Once we sell 25 we start making profit on the whole lot, the first 25 went toward paying for inventory, after that each unit contributes a greater% towards profit because after the first 25 are sold there is no longer any food cost. Thats just one way of looking at it.

but as you state its a dynamic and nailing down hard numbers is not possible until after the fact due to spoilage and burnt offerings end up in the trash. Chef Mars has some speadsheets which help analyse it out, I fly by seat of the pants and depend on intuition, I get uncomfortable buying .60 shrimps and pricing them at 1.75 each.