#4: Understanding Costs

Transcription

1 Food Business Entrepreneurial Training Academy #4: Understanding Costs Alameda County SBDC DUBLIN, CA APRIL 25, 2018

2 Thank you to Our Sponsor

3 Understanding Costs Food Cost Sample Food Costing Costing a Recipe Cost of Goods Sold Labor Costs Fixed Costs

4 Introduction What price should you set for your products? Cover your costs Include a margin The margin is where you make your profit Typical margin for a restaurant is 10-15% Typical margin for CPG is 15-20% Percentages vs Cash

5 Food Costs Your food cost is the percentage of your sales that went to the cost of the food itself. So if you sold a pizza pie for $10 and spent $3 on the ingredients, then your food cost would be: Food cost= $3.00/$10.00 X 100 = 30%? Why is this 30% and not an odd number?

6 Sample Food Cost #1 Formula is = costs/sales x 100 = food cost % What is the food cost for this combo plate? Enchilada and crispy taco combo $8.95 Ingredients for enchilada cost $1.30 Ingredients for crispy taco cost $0.85 $ = $2.15 Food Cost (COGs) 2.15/8.95= *100= 24.02%

7 Beginning of Food Costing Goods Onhand Pricing Units Ounces Torani Syrups servings (1 bottle) Ocean Spray Cranberries 6# servings Skippy PB 2.25 jars 8 1 Nutella 1.65 jars servings (2 bottles) Apricot Preserves 15 jars servings (1 can) 8 lbs Raspberry 2.6 cases servings (1 can) 8 lbs Blackberry 1 jar servings (1 can) 8 lbs Strawberry 14 cases servings (1 can) 8 lbs Sweetened Condensed Milk 32 cans servings (1 can) 8lbs Corn Husks 12 # Cinnamon lbs Allspice lbs Ginger lbs Nutmeg lbs Rice Krispies 9 boxes oz Dulce de Leche (50% less sugar) 32 cans oz Sun Maid Raisins 7.5lbs oz Darigold Butter 12 each lbs. Darigold Butter Chips lbs.

8 Recipe Costing Danish Dough per recipe cost/unit Recipe cost Flour/# Salt 1 0 Yeast/T Batch Danish 4 Almond Rings 1 Doz Cinn Buns Butter/# Milk/C Eggs/ea Sugar/# Cost/Batch 5.11

9 Sample Food Cost #2 Formula is = costs/sales x 100 = food cost % One dozen cookies cost $3.75 to make One cookie sells for $1.50 Two cookies sell for $2.80 Six cookies sell for $8 Which of these has the lowest food cost?

10 Cookie Food Cost 3.75/12 =.312 per cookie One cookie sells for $1.50 (.312/1.50) =.208 x 100 = 20.8% Two cookies sell for $2.80 (.312 x2) =.624/2.80 =.222 x 100 = 22.2% Six cookies sell for $8 (.312 x 6) = 1.872/8 =.234 x 100 = 23.4%

11 Sample Food Cost #3 Formula is = cost/food cost = sales What if I want to set a sales price based on a certain food cost? Use the formula above The ice cream scoop costs $0.75 to make I want a 25% food cost How much should I sell the scoop for?.75/25=?

12 Real World Food Cost Analysis Use food cost analysis to help you set prices Make sure you are covering your costs with a healthy margin Use food cost analysis to keep up with the competition How are they sourcing ingredients? What food prep methods are they using? Use food cost analysis to guard against waste and inefficiency Are you losing inventory to spoilage?

13 Costing a Recipe When you introduce a new food product/menu item you can calculate the food cost by costing the recipe. Gather all the ingredients and their prices Calculate the cost of each ingredient Total the cost of the recipe Determine the serving size for the recipe Find the cost per serving

14 Taking Inventory When you are already in operation, you can determine your overall food cost for any given time period by taking inventory: Take an inventory of all your food stock at the beginning of the period Track your receipts for any inventory that you buy during the period Take an inventory of all your food stock at the end of the period

15 Cost of Goods Sold- 2 formulas Once you have this inventory information you are ready to calculate cost of goods sold: COGS = beginning inventory + purchases - ending inventory = Cost of Food Sales Food Cost = Cost of Food Sales / Food Sales

16 Using COGS to Find Food Cost Formula: COGS / Sales = Food Cost Try it! Beginning inventory of $5k Purchases of $9K Ending inventory of $4k Sales of $40K

17 Labor Costs Your labor cost is the percentage of your net sales that went into the cost of the labor used to produce and sell it. So if you sold a pizza pie for $10 and spent $3 on labor, then your labor cost would be: Labor cost= $3.00/$10.00 X 100 = 30%

18 Why Labor Costs Are Different There are two ways to calculate food cost - by item or by time period. But you can t calculate labor cost by item. Time spent on a pizza slice at a shop: Opening the store and setting up tables Baking the pizza Cleaning the kitchen Running the counter

19 What Goes Into Labor Costs Define your time period (28-30 days is good) Employee salaries paid Hourly wages paid Overtime paid Benefits paid (health, sick leave, etc.) Payroll taxes paid

20 Sample Labor Cost #1 Formula is = costs/sales x 100 = labor cost % What is the labor cost for this food truck? Employee wages and taxes were $895 Net sales were $3,759

21 Sample Labor Cost #2 Formula is = cost/labor cost = sales What if I want to set a sales target with a certain labor cost in mind? Let s say I want a 30% labor cost. My labor bill last month was $1,500 How much do I need to make in sales this month if I spend the same on labor again?

22 Remember the Cookies? Selling in bulk helps lower labor costs Look back at the slide with the cookies See how the food cost kept creeping up when we gave discounts for buying in bulk? So why do businesses do that? Time is Money Bread and Butter

23 What Else Lowers Labor Costs? Cross-training your employees Allows you to schedule fewer employees per shift Helps prevent overtime ERs Track your sales-per-hour Schedule more staff when you re the busiest Make sure your staff is handling orders efficiently

24 Variable Vs Fixed Costs Variable Costs: Costs that vary month to month Costs that we can influence immediately with our decisions Things like food cost and labor cost Fixed Costs: Costs that stay the same month to month Costs we decide once and then can t easily alter

25 Course Syllabus 10/22/18 Class 1: Concept (mission/vision/values) 10/24/18 Class 2: Operating Models 10/29/18 Class 3: Consumer Packaged Goods & Food Service Models 11/01/18 Class 4: Understanding Costs (cash/profit) 11/05/18 Class 5: Operations 11/07/18 Class 6: Marketing 11/13/18 Class 7: Financial Projections 11/14/18 Class 8: Legalities & Resources 11/26/18 Class 9: Funding 11/28/18 Class 10: Your Business Plan