Calculating Profit Margin for Cafe/Restaurant

Samsungnote10 on 28/10/2017 - 13:49

just trying to get my head around things, can a few more experts help me out,
doing this for a curiosity exercise for a friends venue theyre at

Obviously its theoretial,
so, putting it simply
The break even point is
all fixed expenses, eg wages, rent, utlities, insurance, fees, etc etc etc combined
divided the profit margin of the food/drink (profit margin is an arbitrary figure that we have determined and agreed upon)

hypothetically if the fixed costs are $11.25k which includes wages, rent, super, holiday pay, utilites, insurance, fees, and the profit margin is 75%, ie buy something for $2.50 sell for $10, the BEP is $15k

lets assume the BEP is $15k per week in sales, which obviously incorporates the theroetial profit margin

my question is, any sales above this figure (assuming fixed costs such as wages stay the same)

is the profit the net excess above BEP, or is it excess above BEP minus the margins

eg if a venues BEP is $15k, per week, however, the sales are $15,010 for a can of coke extra

assuming the coke costs $2.50 and is sold for $10

is the profit for the business, $10 or $7.50 given that youve caculated BEP based on margins…..

just a bit confused here

Financial

Comments

  • Qroozn on 28/10/2017 - 14:06

    Can you tell us the reason for your question?
    Your fixed costs are always going to be there regardless of your net sales.

    BEP is the net sales that you need to achieve to cover both your fixed and variable costs.

    • Qroozn on 28/10/2017 - 14:12

      Contribution margin is ((net sales - direct costs) / net sales ).
      Your expected contribution margin based on cost x 4 is 75%.

      Let’s drop the word “Profit” and replace it with “Earnings”.
      EBITDA (earnings before interest tax depreciation and amortisation) is the “earnings” you make after you have taken into account your net sales and removed your direct and indirect costs). But prior to any other costs assosciated with asset/investment depreciation and amortisation.

  • peterpeterpumpkin on 28/10/2017 - 14:19

    Unrelated. But what drives a person to open a cafe/restaurant?

    I know a person that had no hospitality experience whatsoever decide to open a cafe where they wouldn't be working themselves. It didn't last long.

    I know people that opened restaurants in cheap areas of Asia only because the risk/investment was much, much lower.

    • armdrags on 28/10/2017 - 17:57

      Risk/investment is much lower but barrier to entry is also almost non-existent so many people will be opening restaurants which result in increased competition. Competitors will try to undercut each other to win customers which result in lower profit and also drive many players out of business.

  • dasher86 on 28/10/2017 - 16:35
    +2

    That is a very confusing body of text.

    Let me explain it another way.
    Sales price of coke $10.
    Cost of coke $2.50
    Contributing margin $7.50
    Fixed costs $11k.
    You will need to sell 4.4k coke to break even.
    Every unit about 4.4k will contribute $7.50 profit.

  • skd100™ on 28/10/2017 - 17:47
    +1

    Shouldn't it be $11,000/$7.50 = 1467 coke to breakeven?

    is the profit for the business, $10 or $7.50 given that youve caculated BEP based on margins…..

    $7.50
    For OP's example $11,250/$7.50 = 1,500 coke to breakeven
    We have $11,250 fixed costs
    We buy 1500 coke@$2.50 = $3,750 (variable costs)
    We sell 1500 coke@$10 = $15,000 to breakeven

    So we have bought and sold 1500 coke. If we want sell more, we still have to buy extra coke@$2.50. We are not getting the coke for free right?!
    Each unit we sell above breakeven will give $7.50 profit.

    • dasher86 on 29/10/2017 - 15:02

      oops must've calced 4.4k units incorrectly.

  • Kangal on 28/10/2017 - 20:10
    +6

    ….sounds like an Assignment for a Bachelor of Business course : )
    Did you try Yahoo Answers?

    • BertieBrown on 30/10/2017 - 14:10

      Even so, some part of me always wants to believe.

  • robbo135 on 28/10/2017 - 20:39
    +4

    Lol, "doing this for a curiosity exercise for a friends venue theyre at"

    More like: "got an assignment due and can't be stuffed reading the textbook"

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