Making More Money from Your Restaurant
Running a profitable restaurant means closely managing costs, particularly variable costs. Variable costs fluctuate with sales and primarily include labour and the cost of goods sold (COGS). We focus here on managing COGS effectively.
Understanding Cost of Sale
Cost of sale is calculated as:
Selling Price (excluding VAT) – Ingredient Cost = Gross Profit per Item
For example, let’s take a flat white coffee sold for £3.60 (including VAT). Excluding VAT, you retain £3.00. The breakdown of costs per cup is:
Coffee: 18g at £16.66 per kg = 30p per cup
Takeaway cup & lid: 10p
Milk (175ml, including wastage): 20p
Total cost per cup: 57p
This means your gross profit per cup is £3.00 - 57p = £2.43, and your theoretical gross margin is:
(£2.43 / £3.00) × 100 = 80%
Now, imagine you sell 100 different products—coffees, teas, cold drinks, cakes, and sandwiches. Each product has its own margin, and your overall profitability depends on your sales mix.
Sales Mix and Overall Margin
For instance, let’s compare coffee and cake sales:
Flat whites: 100 sold at an 80% margin, generating £240 gross profit
Carrot cakes: 100 sold at £4.00 (eat-in), costing £1.50 each
Net revenue (excl. VAT) per cake: £3.33
Gross profit per cake: £3.33 - £1.50 = £1.83
Gross margin: 55%
Total gross profit: £183.33
Total daily net revenue (excl. VAT): £633.33 Total gross profit: £423.33 Overall margin: 66.8%
However, if sales shift seasonally (e.g., replacing coffee sales with lower-margin smoothies), the overall margin drops.
The Difference Between Theoretical and Actual Margin
In reality, calculated margins often differ from actual margins due to factors such as:
Stock wastage (e.g., overuse of milk or coffee)
Inaccurate portion control
Theft or miscounted stock
To accurately track margins, conduct monthly stock takes:
Record opening stock levels
Track purchases during the month
Record closing stock levels
If actual usage is higher than calculated, your real margin is lower than the theoretical one. For example, if excess milk usage reduces coffee margins from 80% to 75%, the overall margin drops to 64.5% instead of 66.8%.
Key Steps to Improve Margin
Accurate Product Costing
Regularly update supplier prices.
Ensure recipe costings are accurate.
Consistent Stock Takes
Conduct stock checks monthly.
Ensure records are thorough and accurate.
Supplier Cost Management
Review and negotiate supplier prices.
Seek alternatives for cost savings.
By proactively managing variable costs, restaurants can improve profitability and ensure financial stability.
How Percy Can Help
Getting the best supplier prices can be time-consuming and complex. Percy, the AI-driven purchasing platform for the UK hospitality sector, simplifies this process by identifying potential savings from suppliers. With Percy, you gain real-time visibility into your purchasing data, helping you control margins more effectively.
Want to optimize your restaurant’s profitability? Try Percy today and start making smarter purchasing decisions.