Home – New Forums Starting your journey Margin on food in cafe

  • This topic is empty.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • #987848
    write2slappy
    Member
    • Total posts: 2
    Up
    0
    ::

    Hi,

    My wife and I are starting a food supplycatering business with the initial focus on selling to cafes. Our initial product range will be focused on cakes and tarts. We are trying to work backwards from selling price to determine feasibility of our initial product range.

    If any of you are cafe owners, what is the target margin you apply to these kind of food products?

    Kind Regards

    #1164578
    MorganMack
    Member
    • Total posts: 2
    Up
    0
    ::

    Not a cafe, but a hotel manager. We generally aim for high 50%GP for food sales.

    #1164579
    coffeeadict2014
    Member
    • Total posts: 5
    Up
    0
    ::

    Hello. I don’t know if you are still reading your posts, but I would like to offer you advice. I have a lot of hospitality training and have received a lot of training about costs associated with food.

    You are choosing the right type of food for a start, desserts are not only cheap to make but they have a huge profit margin. In order to determine the recommended margin for any food or product for that matter, it is recommended that you divide the RRP or sale price of each desert by 33%. This base percentage can be used plus any extra desired profit afterwards.

    The first 33% of the sale cost should be kept for the ingredients cost to actually make the product. the second 33% should be kept for commodities such as wages, bills, electricity, etc. The third 33% is to be kept for profit.

    This is a good way to figure out the sale price of your item. The best way to figure this out is to work out the cost of the desert, and then times this amount by three (33%), as 1/3 will be the food cost, 1/3 will be the wages / bills and the last 1/3 will be allocated for profit. For example if a large tart costs $2.50 to make you should sell it for $7.50. $2.50 will be for the cost of the tart, $2.50 will cover wages and bills, and $2.50 will be your profit.

    Saying this, I noticed you mentioning that you are going backwards, starting from the desired sale price. This is fine, as long as you take your desired sale price and divide it by three (33%). If 1/3 of the costs is LESS than the actual cost to make the product, you are not charging enough. And if it is MORE, then you have nothing to worry about. Usually in the dessert making business, desserts are cheap to make. If your tart costs $2.50 to make but if you want to sell it for $10 instead of $7.50, you can allocate the extra $2.50 for profit, which will mean that you will have to work out what percentage your costs are, profits are and allocate the rest. This is done by dividing the desired cost of your item ($10.00) by the cost to make the item ($2.50).

    For example: I want to sell a tart for $10.00. It costs $2.50 to make. $2.50 multiplied by three is $7.50 so I am safe because I can sell it for a minimum of $7.50 to make minimum profit.

    My desired price is $10.00. $10 divided by $2.50 (cost) is 25, which indicates that the cost to make the pie will be 25% (or 1/4) of the RRP sales price. What I am going to do now is divide the remaining percent by two to allocate profit and wages / bills.

    I can go:
    25% for costs; 40% profit, 35% bills / wages.

    This interprets as: sell for $10.00. $2.50 is costs, $4.00 for profit, and $3.50 for bills and wages.

    Once you work out this percentage you can use it for everything, so when you do your book keeping you allocated 25% of your daily / weekly takings for food costs, 40% for profit and 35% for bills and wages.

    I hope this helps.

    #1164580
    Anonymous
    Guest
    • Total posts: 11,464
    Up
    0
    ::

    Hi coffeeadict2014,

    Thanks for joining the forum, and for your superbly helpful post. We would love it you’d stick around, and hope you enjoy being part of the community here.

    It’s nice to meet you!
    Jayne

    #1164581
    GeeBee
    Member
    • Total posts: 10
    Up
    0
    ::
    coffeeadict2014, post: 201396 wrote:
    Hello. I don’t know if you are still reading your posts, but I would like to offer you advice. I have a lot of hospitality training and have received a lot of training about costs associated with food.

    You are choosing the right type of food for a start, desserts are not only cheap to make but they have a huge profit margin. In order to determine the recommended margin for any food or product for that matter, it is recommended that you divide the RRP or sale price of each desert by 33%. This base percentage can be used plus any extra desired profit afterwards.

    The first 33% of the sale cost should be kept for the ingredients cost to actually make the product. the second 33% should be kept for commodities such as wages, bills, electricity, etc. The third 33% is to be kept for profit.

    This is a good way to figure out the sale price of your item. The best way to figure this out is to work out the cost of the desert, and then times this amount by three (33%), as 1/3 will be the food cost, 1/3 will be the wages / bills and the last 1/3 will be allocated for profit. For example if a large tart costs $2.50 to make you should sell it for $7.50. $2.50 will be for the cost of the tart, $2.50 will cover wages and bills, and $2.50 will be your profit.

    Saying this, I noticed you mentioning that you are going backwards, starting from the desired sale price. This is fine, as long as you take your desired sale price and divide it by three (33%). If 1/3 of the costs is LESS than the actual cost to make the product, you are not charging enough. And if it is MORE, then you have nothing to worry about. Usually in the dessert making business, desserts are cheap to make. If your tart costs $2.50 to make but if you want to sell it for $10 instead of $7.50, you can allocate the extra $2.50 for profit, which will mean that you will have to work out what percentage your costs are, profits are and allocate the rest. This is done by dividing the desired cost of your item ($10.00) by the cost to make the item ($2.50).

    For example: I want to sell a tart for $10.00. It costs $2.50 to make. $2.50 multiplied by three is $7.50 so I am safe because I can sell it for a minimum of $7.50 to make minimum profit.

    My desired price is $10.00. $10 divided by $2.50 (cost) is 25, which indicates that the cost to make the pie will be 25% (or 1/4) of the RRP sales price. What I am going to do now is divide the remaining percent by two to allocate profit and wages / bills.

    I can go:
    25% for costs; 40% profit, 35% bills / wages.

    This interprets as: sell for $10.00. $2.50 is costs, $4.00 for profit, and $3.50 for bills and wages.

    Once you work out this percentage you can use it for everything, so when you do your book keeping you allocated 25% of your daily / weekly takings for food costs, 40% for profit and 35% for bills and wages.

    I hope this helps.

    Great post! My wife and I have looked into starting a cafe and this model gives us a great starting point.

    #1164582
    coffeeadict2014
    Member
    • Total posts: 5
    Up
    0
    ::

    Your very welcome, I am glad I could help.

Viewing 6 posts - 1 through 6 (of 6 total)
  • You must be logged in to reply to this topic.