Break-Even Analysis
The restaurant industry is notoriously difficult to succeed in. Quite often, restauranteurs dedicate their time, effort, and capital, without even making a profit. Before future restaurant owners wade into these treacherous waters, they should first know whether or not their concept is feasible. There are many useful ratios and calculations that can help determine feasibility, however, few calculations are as important to a business owner as a break-even analysis. This paper aims to conduct a break-even analysis on Hype Coffee, an upscale coffee house.
Break-even analysis is a formulaic method for determining when and if a business will earn enough revenue to cover its expenses (American Public University System, 2018). …show more content…
BE$ can be broken down from annual terms to monthly, weekly, and even daily averages (Laube, 2018). If a restaurant has a BE$ of $365,000 and is open 365 days a year, it understands that it must make $1,000 to earn a profit for that day. Furthermore, a break-even analysis also helps to find the restaurant’s “closing point”, the point in which closing for the day would save money (Laube, 2018). This is achieved by breaking down annual VC into daily terms; if daily VC exceed its sales for that day, then the business could have saved money by merely closing its doors. Quite often, restaurants learn that the sales on a particular day of the week is consistently below the closing point and it is best to considering keeping the restaurant closed on that day.
Hype Coffee has an annual FC of $185,788.50, with an average price per person of $30, and an average VC of $20 per person. Using these statistics, Hype coffee has a BEQ of 18,578.85 and a BE$ of $557,365.50. The details are as followed:
BEQ: $185,788.50 / $30 – 20 = …show more content…
By decreasing expenses by 10%, the break-even point changes by $55,736.55 or 1859 customers. Decreasing expenses by an additional 10% adjusts the original break-even point by $105,899.43 or 3530 customers. However, this would not be considered a realistic method. A decrease in expenses would most likely be viewed as a drop in overall quality by Hype Coffee patrons. Since pricing is not one of the three greatest factors for patronage, Hype coffee would be willing to increase it costs by 10% in order to break even sooner. However, Hype Coffee would not increase the pricing any further because perceived value has been linked to customer loyalty (Parsa et al., 2012). As with most early start-ups, Hype coffee will take a while to generate a profit, but a thorough break-even analysis proves that the business is definitely
The restaurant industry is notoriously difficult to succeed in. Quite often, restauranteurs dedicate their time, effort, and capital, without even making a profit. Before future restaurant owners wade into these treacherous waters, they should first know whether or not their concept is feasible. There are many useful ratios and calculations that can help determine feasibility, however, few calculations are as important to a business owner as a break-even analysis. This paper aims to conduct a break-even analysis on Hype Coffee, an upscale coffee house.
Break-even analysis is a formulaic method for determining when and if a business will earn enough revenue to cover its expenses (American Public University System, 2018). …show more content…
BE$ can be broken down from annual terms to monthly, weekly, and even daily averages (Laube, 2018). If a restaurant has a BE$ of $365,000 and is open 365 days a year, it understands that it must make $1,000 to earn a profit for that day. Furthermore, a break-even analysis also helps to find the restaurant’s “closing point”, the point in which closing for the day would save money (Laube, 2018). This is achieved by breaking down annual VC into daily terms; if daily VC exceed its sales for that day, then the business could have saved money by merely closing its doors. Quite often, restaurants learn that the sales on a particular day of the week is consistently below the closing point and it is best to considering keeping the restaurant closed on that day.
Hype Coffee has an annual FC of $185,788.50, with an average price per person of $30, and an average VC of $20 per person. Using these statistics, Hype coffee has a BEQ of 18,578.85 and a BE$ of $557,365.50. The details are as followed:
BEQ: $185,788.50 / $30 – 20 = …show more content…
By decreasing expenses by 10%, the break-even point changes by $55,736.55 or 1859 customers. Decreasing expenses by an additional 10% adjusts the original break-even point by $105,899.43 or 3530 customers. However, this would not be considered a realistic method. A decrease in expenses would most likely be viewed as a drop in overall quality by Hype Coffee patrons. Since pricing is not one of the three greatest factors for patronage, Hype coffee would be willing to increase it costs by 10% in order to break even sooner. However, Hype Coffee would not increase the pricing any further because perceived value has been linked to customer loyalty (Parsa et al., 2012). As with most early start-ups, Hype coffee will take a while to generate a profit, but a thorough break-even analysis proves that the business is definitely