Would just like to compare what some of you guys are doing as far as percents of sales. I no theres alot of variables. At least give profit percent
I understand if you dont want to break it down
DELCO
SALES 10,000 WEEK
FOOD COST 35
LABOR 23
FIXED COST 27
PROFIT 15
I find it interesting you called everything else fixed. Utilities are my 4th highest expense and they are highly variable.
I would consider them fixed also. Anything overhead. If you took your utilities over a year and got an average, there would not be a significant amount you could play with. Sure you could weigh ac vs. no ac. But you wouldn’t NOT use the ac in order to save a significant amount of money on a regular basis. Overall you would not find a LARGE variable amount like you would in food and labor.
Right now we are running about $8,000 per week. At that level, we’re putting about 18% to the bottom line each month.
Food cost - 29.5%, almost like clockwork. Thank you portioning scales!
Labor - 19%
That labor rate does not include the General Manager at 40 hours per week. Everything else, including prep cooks making dough, is in that 19% though. I do not work any shifts at the restaurant myself.
I’ve heard an awful lot of pizzeria owners saying they put between 5% and 10% to the bottom line. I have no idea how that’s possible. Are they really bad at business, or are we really good? Or do they not know how to calculate it? If we were only dropping 5%, even if we were a million dollar store, I’d be sending out resumes tomorrow.
Like DFW, our utility rates vary widely as well. But I don’t consider them “variable” costs. They vary with the season and whether we’re using the air conditioner or furnace and how long our outdoor signage is burning. I can’t find any variance related to sales though. Of course there’s some variation with regard to sales, but it would be way to small to detect against all the noise of seasonal variations.
I do agree with the concept of utilities as fixed cost . . . across the three years I’ve been at it, each month was pretty close to the same. HOWEVER, my utilities range from $900 to $400 within the year. For my money, a larger than 100% difference is variable . . . but it is also predictable, and therefor, fixed cost.
You’re right Nick.
So a little Econ 101 (micro)… Something being variable does not make it a ‘variable cost’ in the accounting sense. It needs to vary directly with sales. You can argue that there’d be some differences based on sales, but it’s very small as a percentage of the overall cost. Your ovens are going to be running whether you make a pizza or not, and they’re going to use pretty much the same amount of gas either way.
The other accounting test is this: If it’s truly variable, the cost should be ZERO when you have ZERO sales. If you open one day and sell nothing, you shouldn’t incur any variable costs. Utilities fail this one as well… they’re all going to still be running. You’ll use a little bit less of each, but not nearly enough to make a dent in the bill. The majority of that bill will be incurred either way.
Food, credit card discounts and delivery driver reimbursements are the only truly variable costs I can think of in this business. Even labor is very lumpy, and if you have no sales you’re still going to incur some labor costs. Those base labor costs should really be considered fixed. That’s exactly why it’s correct to include a store manager’s salary as a fixed cost, and not as a percentage of labor.
We’re VERY small as a business … and we’re in Missouri where the minimum wage increase killed us with an overall increase of 21% in wages. We hire mostly high schoolers, at minimum wage, and when it went up our labor went through the roof accordingly. Market here is limited and we’ve just about sucked every dollar out of this little community that we can. If I didn’t enjoy being around “kids” so much, it wouldn’t be worth it. But, it’s a fun business … and I only wish we were in a larger population (only 1494 here)! My main point, now that I’ve rambled, is “how” did minimum wage effect anyone else???
Same amount of gas, but the cost per therm climbs steeply in winter. The cost per unit climbs even when consumption is fairly level or slight increase. Same with kWh of electric during summer. You guys with electric ovens feel the squeeze in summer while us gas oven guys get it in winter. Still, it’s all predictable and not tied to sales very much.
Avg weekly sales 2500 or 10,000 per month
Rent 1500 or 15%
Food Cost 39%
Labor 24%
Royalties 4%
Fixed costs 14%
Sales Tax 6%
Total 102%
Bottom line = -2%
Anyone wanna buy a Toarminas Pizzeria in Michigan???
When you mention bottom line and labor, are you figuring in your pay as labor. My sons are opening a place and from what Ihave read, I don’t see that the figures presented would support two owners.
[quote=“Guest”]
Rent 1500 or 15%
Food Cost 39%
quote]
Looks to me like you are working for your landlord and food distributor…these numbers are too high
Food cost=31%
Labor=23%
fixed-$1700 weekly
average weekly sales=7000
I also work about 75 hours a week in my shop but that is because I make the sub rolls from scratch(I have a bread rolling machine for the “hard” work and a proofer to speed up the process) I have to be in early in the morning to get the job done. My sub rolls are what sets us apart in our community. Everyone else buys theirs from a bakery about 45 miles away. I also employ mainly high schoolers so I tend to not trust anyone to make my pizza sauce, marinara, lasagna, or sub rolls, etc. (one idiot once used 2 cups of salt instead of sugar in a large batch of pizza sauce and I had to throw away an entire case of 7/11 and two cans of saparito, but not before I had a customer complaint about the salty pizza(luckily one of my regulars and he laughed about it after I explained what happened) Now, these averages were prior to hitting a brick wall in april when averages dropped considerably for the month but seem to rebounding nicely starting with the last weekend in april.
Lets not forget Mr. Toarmina, the franchisor. Because God knows this has ruined me financially and I have yet to take a penny for myself out of this place.
Have you not heard of mixed costs?
Those of you that don’t think you can control your utility costs some are throwing some money away each month. Do yourselves a favor, for one month try to be as conservative as you can with the juice, watch your bill drop. Then come back and tell me it is a fixed cost. Every place I have taken over, I have been able to drop the utility bills by at least 20%. And when you are being cost efficient, these bills do go up with sales. Hence, a variable cost.
Also, the notion that wages are not variable is almost laughable. I think you need to check your definition of variable and reread that section of your accounting textbook. If your labor costs do not change based on your output you are doing something very wrong on slow nights. Very, VERY wrong.
Nowhere in accounting does it say that to be a variable cost that the line has to be linear. Like most costs involved in a pizza place, labor is a mixed cost.
That being said, to those who say certain expenses don’t vary much and that makes them fixed - that is not correct either. We all (almost all) agree that labor is variable, yet my labor is nearly identical each and every month. Just because you pay the same every month does not make something fixed.
Before we can spend much more time haggling over fixed and variable costs, someone or the group should decide on what definitions will be used in the discussion. There are several out there: some are general terms, some are industry specific, some are restaurant directed and some are developed by experts in the pizza industry to use as benchmarks in developing business plans and budgets and accounting.
They are all apples to ornges, so the definition of terms will head us all down the same track. Once again the simple question hits the speedbump of not being so simple afterall
Fair enough. I am not new to this industry, I am well aware of the fact that it is common to consider everything other than Labor and COGS to be fixed. I was simply trying to challenge that notion and point out that if you give these expenses the same attention that you do variable ones that significant cost savings is out there. So many businesses I have seen ignore “fixed” expenses because they are “fixed”. In reality, they are not fixed and they are controllable. Putting a bad label on something because it is acceptable has confused most operators and made them pay less attention to these expenses than they should.
Now, THAT has big value when you put it that way. You’re right; I’ve had conversations with local independent restaurant people who gloss over their control of ‘fixed’ costs and end up losing big scratch over the year.
Fixed doesn’t mean mindless; fixed cost savings are big money if you can renegotiate something or reshcedule staff for economizing. We keep hearing things called ‘fixed’ and we often forget the description of why they are fixed . . . and add our own perception that they cannot change.
The ‘fixed’ and ‘variable’ labels apply to the relationship with sales not really much more complicated than that.
If you spend more or less on something when you do more or less sales then its a variable cost if you spend the same its fixed.
that pretty much summaries about 8 posts before!!!
DFW writes:
Fair enough. I am not new to this industry, I am well aware of the fact that it is common to consider everything other than Labor and COGS to be fixed. I was simply trying to challenge that notion and point out that if you give these expenses the same attention that you do variable ones that significant cost savings is out there. So many businesses I have seen ignore “fixed” expenses because they are “fixed”. In reality, they are not fixed and they are controllable.
God I love a good economics discussion. I would like to add to what you said if you don’t mind Nick and DFW…
Variable cost % - Is a percent of sales that will move the $$ up and down with sales volume though the percentage of sales should stay relatively consistent.
Fixed cost $ - Is a fixed dollar amount not affected by sales. Whether you do $1 or $100,000 it will stay relatively unchanged.
With that being said, there are some fixed costs that are controllable and there are some that are uncontrollable… however, they are still fixed and do not vary quite as extensively with sales volumes as their variable expense counterparts.
-J_r0kk
P.S. No I’m not going to throw my financial information out here. Are you crazy? Help I will offer, financials is not for discussion.