# gross profit & menu costings



## robbieskye

hi all i have just been given a possition as a head chef, although i do not have my papers and i am trying to cost a menu with a 60% gross profit margin my cost of steak is $15.99 k/g, salad is approx 70c chips or side orders are about the same, how would i work this out?:crazy:


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## kuan

1) Take all your costs and add them up.

2) Divide all by 40

3) Multiply all by 100


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## robbieskye

is it really that easy, what about staff cost, cost of ameneties etc


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## jayme

you said _gross_ profit, did you mean _net_ profit? calculate all your fixed costs, and labor costs- so you know what you are working with. What percentages are you allowing for optimum food cost? labor? fixed expenses? and then profit? Many places start with 25% for each and then adjust as needed.


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## thetincook

I've always seen used (in generic format):

Gross Reciepts
Less Cost of Food and Drink Sold
Less Cost of Labor (Usually ony direct hourly labor both)
---------------------
Gross Profits

Less Operating Expenses (Overhead, fixed costs, salaried jobs, etc)
---------------------
Income from Operations

Plus Other Income
Less Other Expenses
---------------------
Net Income

Keep in mind, you are not going to have the same food cost% for every plate
You'd more likely see a FC% on the steak plate of 45-50% while on chips and salad see a FC% of only 6-10%

You must consider each items contribution to profit and its estimated volume of sales. It helps if you already have the menu mix of sales already. In Culinary we studied a method where the menu items were sperated into four catagories. Stars (high sales, high profit), Dogs (low sales, low profit), Puzzles (low sales, high profit), and "I forgot what word they used" (high sales, low profit). I'll see if I can find my textbook from school.

Also learn to use Excel or other spreadsheet program if you haven't already.
There are a variety of places you can get industry averages for your area, starting with your local restaurant association. I've used these to base my budget off of.


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## robbieskye

thank you so far it has been a great help, in regards to profit all i need to worry about is kitchen as the rest where i work has seperate cash record for the food register meaning that i do not have to worry about advetising, beverages ect. when it comes to amenities i only have to worry about % electricity and all gas. p.s. i had a reaelly [email protected]#$ty night tonight because manager does not seem to understand that you need to have more than *just *enough staff for the week so when some one calls in sick(or 2 people)you have someone to fall back on!


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## dinerminer

Typically, gross profit is calculated as gross sales minus cost of goods (food and beverage) or, selling price of product minus cost of product. Labor is almost universally treated as an operating expense. 

Don't try to cost your menu out at 40% food cost for every item. Lower cost items tend to have higher profit margins and higher cost items tend to have lower profit margins. Look at your sales mix and see what you are selling, this will give a lot of insight as to where the pricing thresholds are.


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## robbieskye

o.k. i understand this so as an example if i had an rib fillet on the bone or a wague steak at around $6.50aus - $7.00aus(cost price)a steak + about $1.00aus for side order and i sell 10 a day how would i compare this to a $2.00(cp) open grill sandwich that i sell 70 a day ?


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## kuan

You really need to brush up on this math. This will kill your career if you cannot run a kitchen using simple food cost calculation. You cannot count on cheftalk to do it all for you. Please, for the sake of all of us and yourself, brush up on your math!

Your steak costs $8+$1=$9. If you want that to run 40% gross you take $9 and divide by 40.

9/40=0.225

Multiply that by 100 and you get $22.50.

You're selling 10 of those so your total is $225

Your cost for 10 of those is 225*0.4=$90 and the rest is gross profit, $135.

That sandwich is 2/40=0.05

Multiply that by 100 and you get $5.

You're selling 100 of those so your sales from that is $500

Your cost for 100 of those is 500*.4=$200

Gross profit is $300.


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## dinerminer

Kuan, you can make your formula even easier. Take the product cost ($9) and divide by targeted cost percentage (40% which is .40). $9/.40 = $22.50. Same thing, one less step.


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## dmt

You'll also have to take into account what the market will bear...

As in what's your competition offering.

You can have all your pricing set to turn a respectable profit, but if there are no customers, due to too high a price, 60% of zero is still zero...

Sorry to be a downer, but it's a consideration that must be made...


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## robbieskye

sorry kuan mate but you seem to have mis understood the last post that i put up what i was asking was how much % profit do you want to try and get from a low cost, high moving item compared to a high cost, low moving item, do you try and get 80% profit out of the low cost item or do you still stick to the 60% profit margin? there is not a great deal of competition so i can probable get away with selling at a slightly higher price


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## risque cakes

always hated that class! Almost failed it too, if I hadn't had a sympathetic Chef/Instructor that saw me busting my hump in his class! Never missing, never late and staying for tutorials and most important..

DOING MY BEST TO PASS!:blush: and I'm NOT a stupid person!


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## dmcropper

I've always used a simple method take price of the main Item of the dish add £1 for garnish and times by 4 gives you a 70% gp. An example I buy in rare breed sirloins which cost £3 a steak add 1 for chips and rocket (which obviously don't cost that but it also includes 20p for wastage) so you need to sell it at £16. I keep all other running cost and wage costs separate from food then compile a weekly and monthly net profit. Create a gp counter using a spread sheet program and imput all invoices daily to work out how high or low your gp is and how much you have to spend through the week. Also buy a vacuum pack machine it will add 3 to 4 days to shelf life of fish and meat and also prevents freezer burn.You can also play around with your gp buy ordering loads of frozen food one week that you need next month it will gp on one week but make it better next month. I'm buying 8 frozen duck legs a week till december so my gp for December will be better because I havent had to spend any money on duck that month.


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## petemccracken

Dividing food cost by your target food cost percentage WILL give you a number. Whether that number is the one you need to avoid going broke is another question entirely.

Remember: Paid tickets in the drawer minus food costs minus labor minus overhead costs = profit

Now, if food cost divided by food cost percentage less labor costs less overhead costs is greater than zero, you are on the correct path.

*You still have to know your labor costs and your overhead costs,* otherwise there is a good chance you will go broke!

Remember, food cost percentage, labor cost percentage, and overhead percentage are *management tools* to help you identify problem areas so you can take corrective action. Using any one without fully understanding the other two will lead to disaster!

Overhead costs exist whether or not customers come through the door as does some base labor costs.

Food costs, and the rest of your labor costs and a very minor portion of overhead costs (such as utilities, laundry, etc) are only incurred when you have customers.

Example:

20 top restaurant, M-S, dinner only

Overhead (rent, insurance, licenses, utilities base, etc.) = $5,000.00/month (OC)

Base labor (chef/cook, dishwasher, server/hostess, $10/hr, 8 hr/day) = $5,100/month (BL)

Average ticket/cover = $25.00

Average food cost/cover $10.00 (40% FCP)

Gross Profit/cover = $15 GP

*Minimum Covers/Month to break even @ 40% FC= *(OC+BL)/GP = $10,100/$15 = 674 covers/month = 23 covers/day = 1.15 turns/day

If you do less than 23 covers/day, your food cost percentage is too high to break even! Either you reduce food costs or you increase ticket price, assuming the competition will allow it.

You also have to balance your ticket price(s) against your competition.

Now, this is an over simplified example for illustration of approach only.


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## shane white

So true! You cannot rely on a website or an internet forum to run a kitchen my friend?? I'm surprised your employers haven't jumped down your throat on this one.


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## ianmacwilliam

putting 60% on everything doesnt always work.

i.e

a ham sandwich will give you a higher gp

But a steak will give you a higher profit margin.

for example

ham sandwich €1 sell at €2.50 will give you a higher gp 60%

a steak at €3 selling at €5 will give you a bigger profit margin but a gp of 40%

So you need to balance your menus to cheap foods like pastas to more expensive items like fillet steaks.


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## benchef

I am a Chef and I have a very simple cost/GP calculator that you can use (doesn't calculate above 99% GP)

Most kitchens will be profitable if you work to a GP% between 65-70.

It also confirms that you should basically times cost price by 4 to get a selling price calculated at 70% GP

Cost price divided by 0.3 times 1.2(VAT-UK)

This calculation will give you a 70%GP and add on VAT e.g. Cost price £1.00, divided by 0.3 = 3.33(70%GP), times 1.2(VAT) =£4.00

To get to the divided by figure/GP percentage wanted, simply take your wanted GP% away from 1 with an 0. in front of it. e.g. for a GP of 68% = 1 minus 0.68 =0.32

So cost price £1.00, divided by 0.32 = 3.125(68% GP), times 1.2(VAT) = £3.75

Remember 1/3 Costs, 1/3 wages, 1/3 profits!!


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## petemccracken

benchef said:


> ...Remember 1/3 Costs, 1/3 wages, 1/3 profits!!


Hm, I thought it was 33% labor-33%Food Cost-33%-Overhead cost-1% profit /img/vbsmilies/smilies/wink.gif and the really profitable places 30-30-30-10


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## cheflayne

PeteMcCracken said:


> Hm, I thought it was 33% labor-33%Food Cost-33%-Overhead cost-1% profit /img/vbsmilies/smilies/wink.gif and the really profitable places 30-30-30-10


Yeah I agree with Pete on the 30-30-30-10. That was always my target goal during my tenure as an owner. The last industry periodical study I saw had fine dining segment average profit margin at 2.87%. Although I have to admit, I would have loved to figure out a way to increase profits to a 1/3 share without hurting gross sales.


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## brandon odell

Margins vary so much by sector and geography. Industry averages don't help much because they are skewed by the 59% first year failure rate. Its not worth owning a full service restaurant unless you can make a 10% profit, but the average successful restaurant doesn't break even for a year normally. If you were to only make a 10% profit at a Subway or a Sonic, you'd be fired. At the very least you'd be grossly underperforming.

Pricing by percentage is a risky gamble. Percentages don't pay bills and every percentage you look at greatly affects the other percentages in your restaurant. A scratch kitchen may only run a 25% food cost, but the labor budget might eat up 35% of sales due to the extra work.

Ultimately, you shouldn't be looking at percentages as a pricing tool, but rather a management tool. You can't know that your food cost should be 30% until you've shown that a 30% food cost can be balanced with the necessary labor and expenses and profit, WITH the menu and sales mix you are running. Picking a percentage out of thin air and using it to price a menu is like playing Russian roulette with the restaurant finances. You might get lucky, there might even be a good chance of getting lucky, but there's a real risk of blowing your head off too. 

I choose to look at the whole financial picture of the restaurant and calculate an ideal gross profit dollar per person to have as a target average when teaching restaurant owners how to price. There is an article I wrote that explains the process, but it violates forum rules to post a link.

At the very least, owners and chefs should be looking at their whole prime cost (food + labor) when setting budgets for cost percentages. Then, those budgets should be adjusted after one or two profitable budget periods when owners can really see what works for their restaurant.

It doesn't behoove a chef to get too hung up on food cost percentages. It makes for a real headache when trying to explain to an owner that they are actually making more money when you sell more high cost, high profit menu items even though their food cost percentage is higher.

A better way to judge your food costs is by comparing them to ideal costs, preferably every week, because low isn't always "good" and high isn't always "bad".


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## john andrew

I totally agree x4 to get 70% gp...but don`t you add 17.5% vat after that  I do 1.175(17.5%)..?


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