Menu
7 min

Ratios and indicators to follow for a restaurateur, caterer or baker

Decompose your income statement from sales to net income by studying the different items and learn how to follow the right ratios: gross margin, multiplier, etc.

Sébastien Vassaux03/14/2020

Decompose your income statement from sales to net income by studying the different items and learn how to follow the right ratios: gross margin, multiplier, etc.

The different items of the income statement

Turnover

The turnover (CA) corresponds to the sum of the sales made. We usually speak of a turnover excluding tax because VAT is only collected on behalf of the State to which it is then remitted.

You can calculate the turnover in different ways:

  • Product turnover including tax = sales price including tax * sales volume
  • Product turnover excluding VAT = sales price excluding VAT * sales volume
  • Total turnover = sum of the turnover of the different products
  • Total turnover = average number of covers * average turnover per cover

Expenses: material costs and personnel costs

The charges are of different types:

  • Variable costs: material costs, temporary staff, financial costs
  • Fixed costs: permanent staff, overhead or overhead costs

For the restaurateur, caterer or baker, the material costs often represent a ratio of 25% to 35% of the costs while the personnel costs can reach a ratio of 40%.

The material costs conceal an important source of optimization because they are seldom controlled or known while the personnel costs are sudden due to the competitive environment of the labor market. 

Temporary staff makes it possible to reduce exposure, but there is an indirect learning cost which is difficult to quantify.

The overhead costs include everything relating to administration and what is not core business: cleaning, electricity, etc.

Financial expenses such as loan repayments and then taxes and duties further reduce the result. We go from an operating result to a current result then to a net result.

Optimized ratios

Easily calculate your cost of goods sold, multiplier, gross margin, net margin
calculate your ratios

Profitability indicators or ratios to follow

Gross margin

The gross margin corresponds to sales excluding tax less material costs. The calculations are always done by removing the VAT from the price including VAT.

In percentage or ratio, we divide it:

  • By price: it is a mark rate or margin on price. Its value is between 0 and 100%. This is the rate usually followed in catering, we aim for a minimum of 75%.
  • By cost: it is a margin rate or margin on cost. Its value is between 0 and infinity.

Example: for a product sold for € 5 including VAT with a material cost of € 2 excluding VAT, we have:

  • Price excluding VAT = € 5 - € 5 * 20% = € 4
  • Margin on price = (4 - 2) / 4 = 50%: profitability is lower than expected

The multiplier coefficient

The multiplier is the ancestor of the price margin. It is more ambiguous because we often forget the impact of VAT.

Coefficient = Price HT / Cost HT

Thus, for a margin of 75% we have a coefficient of 4.00x, for a margin of 50%, we have a coefficient of 2.00x, for a margin of 25% we have a coefficient of 1.33x.

Example:

  • Cost of € 2 and coefficient of 4x: price excluding VAT of € 8 + 20% = € 10 including VAT. (8 - 2) / 8 = 75%.
  • Cost of € 2 and coefficient of 2x: price excluding VAT of € 4 = € 5 including VAT. (4 - 2) / 4 = 50%.
  • Cost of 2 € and coeff of 1.33X: price excluding tax of 2.6 € = 3.2 € including tax. (2.6 - 2) / 2.6 = 25%.

In restoration, we try to maintain a material ratio greater than 75% which is equivalent to a multiplying coefficient of 4.00x

The margin on variable costs

The margin on variable costs is obtained after deduction of all the variable costs associated with your production. 

For a restaurateur, baker or caterer, these are the material costs (ingredients and consumables), the costs of the kitchen staff (a fortiori if the staff is not on a permanent contract otherwise it is debatable) and the other costs associated with the production but often associated with overheads because they are difficult to associate directly with products (electricity, etc.).

The operating margin

The operating margin corresponds to the deduction from sales of all operating expenses: material costs, labor costs and overheads.

The operating result

The deduction of operating or operating expenses from turnover makes it possible to calculate the operating result. It is a very representative indicator of the viability of your business.

Indeed, the other charges are not directly linked to the nature of your activity, they are important but circumstantial.

The current result

The current result is obtained after the deduction of financial expenses such as your loans, taxes and duties (excluding income tax). You can negotiate this loan with your banker, which is why the current result does not absolutely reflect the viability of your business, it depends on the amortization period, the amount borrowed and the rate applied.

The net result

The net result is obtained after additional deduction of income tax.

How to take advantage of these elements?

Study your accounting

Ask your accountant for help to analyze the different positions and identify trends over time. It will help you identify risks: continuously increasing costs, decreasing turnover, irregularities, etc.

Don't neglect cash

The sinews of war are less the net income than the available cash, impacted by the value of the stock, your receivables and the debts of your customers (the WCR). Depreciation and provisions have no impact on your cash flow.

Calculate your material costs for each product

Use FoodMeUp to calculate the cost of each of your dishes, taking into account all the parameters: weight loss, cooking, packaging costs, etc. FoodMeUp will allow you to represent the reality of work in the kitchen and to understand very precisely the details of your profitability.

Compare your products with each other

Second, compare your products with each other.

  • Isolate products that have a low margin . Do you have to renegotiate the costs? Are the quantities of ingredients in the recipes too large? Are the selling prices too low?
  • Identify the products that have a good margin.  What can you do to sell more? How to highlight them? Can you increase the price further?
  • Identify ways to cross-sell.  Do you sell products easily together? Suggest it to other customers to increase sales volumes. Create formulas.
  • Compare margins with sales volumes.  Highly sold products are bestsellers, they are compared strongly to the competition and you have to handle their price carefully. Little sold products are slow-movers, customers are not very sensitive to prices and can be increased without much risk. 
Photo © Timur Saglambilek on Unsplash