What's your G.P. (Gross Profit)?

So, our excitement turned to apprehension when a new signup rang us and was a little out of sorts. When we enquired as to what was wrong he said he had a big problem with Prepsheets. Ok we said, what’s the problem? Well, he informed us, he had put in the ingredients to a retail product he sells in his café, put in the selling price of €9.00 and Prepsheets was telling him his g.p. was 64% but he needed it to be 70%. Oh we said, we’re not sure that’s a Prepsheets problem - lets look at your product and see what we can do as you are not achieving the necessary margin for your business. We sort of forgot about this incident when another new client rang us to say that the margin showing in Prepsheets did not match her calculated margin. Oh we said (again), and she said that her ingredients cost €0.50 and she sells the product at €1.00 so she was making a 100% margin. We had a chat and explained that no she was making a 50% margin.

This brought Tara back to 1998 when we first opened our restaurant and she could not get her head around g.p. - it can be confusing. So, we have drawn up this little explainer and are highlighting to our customers the importance of really understanding the g.p. on every item of food and drink you sell.

So, when you sell a scone you need to include the cost of the extras in your costs, like butter, cream, and of course jam. The same for your Tea’s and Coffee’s - average the milk and sugar allocations to ensure you cover all your costs. If you are mainly a takeaway business you need to include your packaging costs as part of your costing. If you have been following our recipe postings in the past you will have seen a lot more examples of these, if you are new to Prepsheets Posts just scroll through our blogs and view any of our previous recipes.

In our example here our Scone is selling for €3.20, it’s really important that we remember to subtract the VAT from this to know exactly what our business is getting for this scone. We also need to subtract the cost of the scone (this is just the ingredients cost at this stage) so now we are left with €2.14 of that original €3.20 goes to the company. Nice I hear you say, but now we need to subtract all the other costs to get our PROFIT! This is where is gets finicky and if our original gp wasn’t enough, we could end up with no profit after all the other costs. I have allowed for a tough to achieve 35% labour cost - do you know what yours is? If not, ring your accountant now or calculate it from your accounts package

(Total Salaries (including all ER PRSI, Accrued Holiday and Sick Pay) / Total EX Vat Turnover)*100

If your % is 35 or more, we will have a little article for you next month on what you need to consider before January 2024 to ensure at the very minimum you don’t exceed this figure in 2024. If your % is less than 35 we’d love to hear from you and maybe get you to write a little article for us on how you are achieving this!!

Then you need to know the other costs in your business, and these are everything from marketing, office and admin costs, rent, rates, utilities, insurance etc. Again, you should have this but if you don’t ring your accountant to find out or again go to your accounts package and calculate them as a % of your turnover.

In our example they total 32.25%.

Leaving our business with a profit of 8.63% - which is quite good for this industry. However, at €0.24 cent profit per scone there is not a lot of wriggle room for overspending and we need to sell alot of scones to make a profit. (€8630 profit for every €100,000 in turnover).

Our customers don’t have to worry about calculating their ex vat margin and recalculting it everytime there is a price change on one of their ingredients - Prepsheets does it for them.

If you would like to discuss your margin with us, drop us a note on info\@prepsheets.com or book a slot in our calendar here.