Fixed costs, variable costs and break-even
Separating costs by how they behave with sales tells you how much you need to sell.
Fixed and variable
Fixed costs don't change with sales volume in the short term: insurance, property taxes, amortization, permanent staff. "Fixed" doesn't mean they never change, just that they don't depend directly on how much you sell.
Variable costs go up and down with sales: raw materials, beverages, VAT, gross income tax, health & safety levy and card fees.
Labor is a special case: within a month it's almost all fixed (waiters are hired before you know whether customers will come), so it's considered semi-fixed. In catering, by contrast, much of it is variable.
Sales, costs and profit
Gross sales − taxes = net sales.
Net sales = variable costs + fixed costs + profit.
Contribution
What's left of each sale after paying variable costs is the contribution: what it adds toward fixed costs and profit.
Once past the break-even point, every extra dollar of sales generates a profit equal to its contribution. The same formula shows quickly the impact of raising or lowering costs or prices.
Formulas to practice
Break-even point
How much you need to sell to cover every cost, and how much to earn what you want.
Income statement
Revenue minus costs for the month: how much the business earns before and after income tax.