Break Even Analysis

Break Even Analysis is in my opinion the most important number in running any coffee business...how much do I have to sell to pay all of the bills? Normally we would determine break even for a specific period of time, usually per month. A simple definition applied to a coffee shop is how many customers, when multiplied times the average gross margin sale amount is equal to the cost of doing business. (Refer to Income Statement Page for review of Gross Margin)

From our Income Statement Sample Page our gross margin is $0.637 per dollar, and it cost us $334,180 in Labour, and GSA to run our business, we need to sell 334,180/0.637 worth of sales, or $524,615.38 to hit our break even point.
Let's say we know that on average, each transaction at our cafe is for $5.85, we can now determine that we need $524,615.38/5.85= 89677.84 customers per year, or approximately 250 customers per day.

These are all very simple calculations, using numbers generated by either our cash register, or our income statements, that can quickly identify whether our coffee shop is able to pay it's bills. If there exists a situation whereby we can't get enough people through the door, we need to address either gross margin, pricing, or average per sale figure. But first we need our break even. Spend some time familiarizing yourself with this concept, and let me know if this info is useful to you.