labor / food /fixed costs minus sales = loss/profits
Do you agree???
pt
No. Among other things, marketing is not a fixed cost.
No!
Net Sales (after sales tax & any other promo adj)
minus
ALL associated fixed & variable costs (food, labor, paper, advertising/marketing, cleaning, utilities, auto, bank, rent etc - not your building mortgage)
equals
net profit/loss
if you are buying/paying for the business, that is not an expense, but an asset/goodwill that can/should be depreciated over time
These are the basics
Marketing costs(if any) is added to equation
food and labor combined is whats called prime numbers. Prime should be 60% and under
food includes all food and paper cleaning supplies
fixed includes the majority of the rest
pt
But the interest portion of the mortgage should in there as an expense.
If I ran 60% between food and labor I would have been out of business after 6 months. The ideal numbers for food and labor costs are going to vary widely based on concept and location.
Piper is right on.
In general, its posted somewhere on this site, you can use the 5 PRIME as a rough guide.
-
SALES (after sales taxes are removed)
-
COGS (all costs of goods sold)
-
LABOR (all labor costs)
4 EXPENSES (all other expenses, maintenance, banking, merchant, repair, rent, advertising, interest paid, etc…)
- PROFIT (earnings before EBITA) - Sales minus cogs+labor+expenses = profit
My goal is, of course, increase sales, achieve a 40% labor+cogs, reduce expenses to 10-15%.
When I first opened, labor+cogs were 95%, so as you can figure, big time RED numbers. This year, that combo is 43%. Big labor/cogs don’t mean bad management, but of course, indicates low sales. Big sales can hide a lot of bad management, but not low sales. If you know you’re doing well on labor + cogs, then you’ll also know YOU HAVE TO BUILD SALES! But don’t forget, if you want to increase your profit, CUT EXPENSES!!
I have been in this business for many moons and I have never seen cog and labor at 40%. How is that even possible? Everyone I know runs /shoots for the same prime -60% food(cog) and labor. Average pizza 16" with good cheese sells for 10.95.
Some on this board would love to get just their food costs under 40%
pt
My 16" cheese sells for $16.00.
If i sold my 16" cheese pizza for $16, my COG on that would be 13%.
Some of our markets would never support this price.
After coupons and discounts, our combined food/labor has run as low as 54% during our big months. Over the course of an entire year we would be happy with 60%. Food typically runs about 29%. (“food” includes everything we use up: paper, supplies, condiments, drinks etc)
If I ran the place day to day without a manager, you could take 8-9% off the labor so the total would come down to less than 50% on the best months.
I do not find menu food cost to be a very useful number but food cost on a 16" cheese for us is also about 13%… but then there is the box, waste, spoilage, other less profitable products, cleaning supplies, condiments, napkins, paper plates, bad orders, mistakes… you get the picture.