 Hello Aces, welcome back to module four, lesson five, calculating your break even point. In this lesson, you're gonna learn how to calculate your break even point. For some of you that don't know what break even point is, break even point is the minimum amount of revenue you need to make in order for you not to lose any money. Simply put, your revenue amount equals all your expenses adding up and if that is a wash, then that means that you're good to go. That means you didn't lose any money running your business. Now, of course we want to be able to be profitable but nonetheless we need to understand what is the worst outcome. The worst outcome is that you don't lose money and you're just making it break even. That's the reason why we need to understand our break even point and this is crucial for you to run your business because this becomes your minimum goal that you need to achieve as a business owner because if you dip down and under the revenue amount, your break even amount, that means you're gonna start losing money and that's a really big red flag that you should never be in. A lot of restaurant owners, they fail and they bleed out very, very slowly is because of the fact that they don't know their break even point. It seems like that they're generating revenue but their expenses exceeds their revenue and because of the timing of when you need to pay for your expenses and when the money comes in, it doesn't feel like that they're losing money. It just feels like that the business is not doing too well and it just feels like that their bank is slowly declining and before you know it, what's gonna happen is that they're gonna have to refinance their home, they're gonna have to get loans, debts and so on and so forth and that's a very common phenomenon that we see all the time. I don't want that to happen to you which is the reason why you must and I repeat, you must understand your break even points. Now, you have a clarity of what you need to achieve minimum every single month and you would know how to budget your expenses accordingly based upon your break even point. Otherwise, it's like swimming in the dark, you just don't know where to go and you have no sight in mind. Just imagine you being thrown in the middle of the ocean and you're like in the middle of the night, pitch black and dark and you're supposed to swim to shore. You have no clue which way you're heading and that's exactly what it's like without you understanding and knowing your break even point. You just be spending all the time without knowing whether you're actually making money or not and that's a really horrible way of running a business and that's why you must know your break even point. Just imagine working in years only to make pennies. That's precisely what a lot of restaurant owners are doing right now. A lot of mom and pops without knowing the breaking even but this is not gonna happen to you because you invested in yourself and you are in this class. So what is the break even point formula? Are you guys ready? This is the formula, fixed costs. We talked about fixed costs. If you don't understand fixed costs, go back to the previous lesson where we talked about the difference between variable costs and your fixed costs because this is crucial for you to understand that. Your fixed costs divided by one minus variable cost percentage. I know this is gonna be, whew, what are you talking about? Wilson, this is complicated and that's the reason why we go back to Benzburger, guys. We put Benzburger back in action, guys. So if you don't know Benzburger, go back to lesson one and actually go through this whole module in sequence because one thing builds on top of another. So definitely go back to lesson one and go through all the modules, all the lessons before coming back to here, guys. But if you already know Benzburger in action, you know for a fact that their projected rent is no more than $24.50 per month. So imagine Benz signed on a lease for $2,450 per month. Because he borrowed a bunch of money, he needs to pay for interest and on top of that, the renovation has depreciation that they need to account for which comes up to be roughly around $1,000 per month. Now, add these two together, that becomes your fixed cost. The total fixed cost doesn't matter how many burger patties that Ben sells, his cost is gonna be minimum $3,450. He could be selling 10 burgers or 1,000 burgers. I don't care, his fixed cost is still going to be the same. Now that we figured out the fixed cost, it is time for us to figure out what the variable cost is. Now we put a budget of 70% of revenue is the variable cost. Once again, if you don't know this, go back to the previous lesson because we took and we identified what the variable cost were and how much of a maximum percentage they should be of the revenue. So maximum at 70%, now we can calculate to break even point. What is the formula? The formula is fixed cost divided by one minus 0.7, the percentage of variable cost. Now this becomes your break even point. As you can see here, $3,450 is your fixed cost, which we calculated from adding these two together. The variable cost, the variable percentage is 70%, one minus 0.7 equals this amount. What does this mean, guys? This means that, oops, yep, this is the formula. This means that Ben needs to make a minimum of $11,500 per month in order for him not to lose any money, in order for him to actually pay for all his fixed expenses. This becomes his minimum goal to achieve every single month. So if he is at $9,500, he knows he needs to make another $2,000 in order for him to break even. How is he gonna do that? He's gonna upsell, he's gonna push for that extra drink or the extra fries to add on because he's so close to getting there. And that's the reason why having a break even point is so, so important. It allows him to be able to actually have a goal to attain. Vice versa, if he has done this projection and he's like, yo, I don't think I can hit $11,000 because when you do the projection on the competitor around the block, he's not even making $9,000, then that's a really, really big problem. Then that means that the rent might be too high or the expenses might be too high. Maybe worth looking into another location or just trim down other costs, right? So that's the reason why knowing your break even point is so, so important. It allows you to budget accordingly. Now it is your turn to calculate your break even point and use the cost that you know. A point to add here. The more accurate your expenses, the better informed you are in creating your break even point. The whole point of this whole exercise is all about projections. That means none of the numbers that we're running right now are real. However, the more accurate, the more real these numbers are, the easier and the more accurate your break even points are, your variable costs are or your fixed costs are because those are real numbers, okay? In the link below, download the worksheet so we can do it together on Excel. It becomes a really simple plug and play. You don't really need to do the math for it. All you have to do is just plug and play. So definitely go out there, calculate your break even point for your restaurant. In this lesson, you just learned how to calculate your break even point. Next lesson, what we're gonna cover is using average order value to create your menu so then that way you can start hitting your break even point. Better yet, your revenue goal. I'll see you guys in the next lesson.