Different businesses have different proportionate costs.
The two biggest costs in a hospitality business are stock and labour. Having a low GP and a high labour % can shut your business down in next to no time.
It’s important to understand that all businesses are unique, and everyone operates in a different way. Therefore, your target labour percentage may vary greatly from another business up the street. The ideal labour % of a bar won’t be the same as a restaurant, which won’t be the same as a hotel.
Bars tend to operate on a lower labour %, but the type of bar will dictate the target GP. Bars that have higher draught sales will have a lower GP compared with a Gin bar, and a high-end restaurant may have higher labour costs due to the service element, but they usually have a higher GP target to balance this out. Hotels, on the other hand, can be in a different ballpark altogether depending on which department they choose to associate costs to.
The important thing here is to establish a realistic labour cost percentage and a GP target that are in line with the rest of the market that you operate in.
Supplier pricing and cost sheets
The first thing for us to do, is to go through EVERY supplier you have, where they are, what you buy from them, and how much it costs. You should do this exercise for ALL items and suppliers; food, drink, cleaning supplies and equipment, napkins, non-consumables, gas and electricity, insurance, absolutely everything should be noted down. Keep all perishable items (food and drink etc) on one spreadsheet and open up a separate spreadsheet to keep track of everything else. If you’re primarily/ solely a takeaway business, then pretty much all of your menu is going to have some sort of non-consumable cost. It’s entirely up to you how you allocate the costs of packaging, cutlery, napkins and so on.
Some businesses will keep these items on a separate line in their profit and loss, whereas other businesses will incorporate the cost of these items into the dishes themselves.
One of my clients will only buy sustainable packaging, which costs a bit more than the standard disposable stuff, and so they incorporate the cost of this into their menu. They actively promote that their packaging is sustainable and don’t hide the fact that the cost of these items are included in the product cost- they even use it as a marketing tool for their business.
You should be able to get the majority of your suppliers’ prices directly from them in spreadsheet form. Other suppliers will have an online portal from where you’ll be able to download your own pricelist.
You can use the spreadsheet template I’ve made to list them all. Be sure when you’re filling it out to include the unit that you buy the item in (KG for kilogram, L for litre, ML for millilitre, CC for centilitre, G for gram, or S for single), and the unit quantity that you buy the item in e.g. If you buy an item In Kilos and it comes in a 4 kilo pack as standard, you’d enter KG in column “D” and 4 in column “E”. Most veg items are purchased in packs of more than 1KG like tomatoes and peppers, whereas meat usually has a price per kilo. The spreadsheet will calculate the cost of the lowest denominator of that unit i.e. if you enter 1 KG, then the spreadsheet will work out the cost per gram (G). For anything non-perishable (food and drink).
Food items are usually zero rated for VAT (which means that the rate of VAT applicable to those items is 0%. This is different to “No VAT” and “Exempt” items, but that’s another story), so you’ll enter the pricing as it appears on the supplier’s price list/ invoice. Soft drinks (excluding coffee and some fruit juices) and alcohol are usually standard rated for VAT (the rate of VAT charged is usually 20%).
If you’re a VAT registered business, then you need to use the “NET” price, which is the price excluding VAT rather than the VAT inclusive price. If you’re NOT VAT Registered, then you should use the gross price for each item.
Comparing current supplier prices with previous menu costings.
Now that you’ve entered all of your supplier prices into the spreadsheet template, we need to compare what your suppliers are currently charging versus what your spec sheets say it all costs. Whether you’ve already got your spec sheets on a spreadsheet, or you haven’t got any at all, you’ll need to put this information into the spreadsheet template that we’ve created. If you’ve already costed your menu, that’s great- we’ll have something to compare to. If not, then you might be in for a bit of a shock. We’re going to us the product item codes that are on the “supplier cost” sheet to pull through all of the information relating to that product into the spreadsheets. You’ll then need to enter the weight/quantity of that product into the “weight/quantity” column- if you use 100 grams, then enter 100. The spreadsheet will work out the rest. Keep entering product codes into the “Product code” column until you’ve got all the items that make up that dish and fill out the “weight/quantity” column.
**If you’re struggling to remember what goes into what, then grab a copy of your menu, and work through each product one at a time to establish everything that goes into it. If you don’t currently have specs, then now is a good time to list out all the allergens that are in each dish- this isn’t just sensible, it’s a legal requirement. **
Now that all columns are full, you should see the total cost of the menu item appear at the bottom. If you’ve already got spec sheets in place, enter the costing that you’ve previously worked out next to the respective items in the column next to the current workings. Give it a title in the cell above so that you know which is the old, and which is the new costing. Use the formula =sum() in the cell below the product costs to automatically add up the values in each cell. You should enter the cell reference that the first cost is in, a semi colon, and the last cell that a cost appears in. For example =sum(F2:F10). Compare the two total costs to see how much your product costing has changed since you first wrote your specs.
Enter the selling price that appears on your menu in the cell next to “Menu Price” The cell below will automatically populate the “NET selling price” of that menu item i.e. the price that you sell that item at, excluding VAT. We exclude VAT from these calculations because VAT has nothing to do with profit. VAT is simply a tax that you collect from your customer on behalf of HMRC.
You’ll then see your gross profit in the next cell down, and the cell below that will tell you what GP % you’re currently making on that menu item. Copy and paste the cells from our template into the adjacent cells, in the same column where you have entered the costing from your own spec sheets.
Did you notice a difference in the cost pricing and the GP? Maybe you forgot to remove VAT from your original spec sheets so your GP was already lower than you thought it was?
Complete this exercise for every item on your menu. You might need a few extra spec sheets. Right click on one of the blank spec sheets and click “Duplicate” to copy the sheet over.
Batch costing, shrinkage, and waste during prep.
There might be quite a few items on your menu that involve batch-making or batch prepping, and there will be other menu items where the raw product quantity is vastly different to the cooked product quantity- this is very common for menu items like a Sunday Roast- when meat is cooked, it loses water and shrinks.
You might put a 6-kilo beef joint into the oven, but you might only be left with 4 kilos once it has finished cooking. Therefore, the cost of the product is very different from one stage to the other. For something like meat, we want to know the weight that we’ve bought it in at, and the weight it is once it has been cooked and cooled. Using the example above, you’ve bought in a 6 kilo joint of silverside beef for £11 per kilo. The total cost is £66. Once cooked, the joint weighs 4 kilos. The total cost for that joint is still £66, but the cost per kilo is now £16.50 (£66 divided by 4 kilos).
The same process applies for most fruit and vegetables as there’s always an element of wastage when items are prepped. It’s important to establish the actual cost of produce once it has been prepped and use this cost when determining your menu price.