Break-even point (BEP): Definition, calculation and example

What is Revenue per Available Room (RevPAR)?

The break-even point (BEP) is a key financial measure that defines the point at which the total revenue of a hotel or restaurant covers the total costs without making a profit or loss. This indicator is of great importance in the hotel and catering industry, as these sectors are characterized by high fixed costs and variable sales that are strongly influenced by seasonal fluctuations and customer behaviour. Knowledge of the BEP helps operators to adjust their prices, budgets and operational processes to ensure profitability, especially in the crucial start-up phase.

How is the break-even point calculated?

The BEP is calculated using the following formula:

Break-even sales = fixed costs / price per unit – variable costs per unit

Fixed costs include all regular expenses such as rent, salaries and insurance that are not directly influenced by sales. Variable costs change depending on the number of guests or units sold and include items such as food costs in restaurants or cleaning costs in hotels. The price per unit reflects the average sales price per overnight stay or dish.

When do I make sales and when do I start to profit?

Revenue is generated with every sale of goods or services. However, the BEP shows the point at which sales are sufficient to fully cover costs and thus achieve economic equilibrium. Beyond this point, every product or service sold contributes to profit.

Practical example:

A hotel with monthly fixed costs of EUR 50,000 and a price of EUR 100 per room per night with variable costs of EUR 30 per room per night achieves the BEP with 714 room nights sold per month. Every additional room sold increases the profit.

Graphically, it is as follows:

The fixed costs are constant and do not change with the quantity sold. The variable costs increase with the number of rooms sold. Total revenue also increases with the number of rooms sold.

Why is the BEP particularly important for the hotel and catering industry?

The sectors are susceptible to fluctuations in demand due to tourism trends and seasonal events. A precise understanding of BEP enables operators to respond effectively to such fluctuations, plan prices and capacities strategically and minimize risks.

Utilising the knowledge of the break-even point:

Financial transparency: The BEP provides a clear overview of the minimum number of products or services that need to be sold in order to cover costs. This is particularly important for liquidity planning and helps to identify bottlenecks at an early stage.
Pricing and cost management: By analyzing the BEP, entrepreneurs can better understand how changes in cost structures or sales prices affect profitability. This enables them to set prices appropriately or introduce cost-cutting measures.
Risk management: The BEP helps to minimize financial risk by showing the minimum income required to avoid slipping into the red. This is particularly important in an industry that is affected by seasonal fluctuations and external economic influences.
Strategic decision making: With knowledge of the BEP, decisions on investments, marketing campaigns and other operational initiatives can be made more informed. Companies can calculate how these activities affect the BEP and thus plan better.
Long-term planning and growth strategies: The BEP enables entrepreneurs to adapt their business models and develop growth strategies aimed at sustainably increasing sales above the break-even point.
Motivation and goal setting: The BEP can serve as a motivational and goal-setting tool for management and employees. It sets a clear goal for the team to work towards and serves as a benchmark for success.

With knowledge of the BEP, entrepreneurs in the hotel and catering industry can not only avoid losses, but also manage their businesses efficiently and in a target-oriented manner and promote sustainable growth.