I've been noticing lately that when it comes to restaurant reviews there are generally four different adjectives that are used by customers to describe the prices at various establishments. They are as follows:
1. Expensive
2. Overpriced
3. Pricey (as in 'a bit pricey')
4. Reasonable
No one will ever use terms such as 'fair' or 'accurately priced' and God forbid anyone ever refer to a place's prices as being 'cheap.' I think this is mostly due to not understanding where the money goes that they spend.
I actually have lots of thoughts on this but I'll save those for another post some day. However I do want to quickly review the general costs associate with every dollar that comes into the registers.
So have you ever wondered where the money you spend at a Restaurant goes? How much of it is profit versus expenses? Well here is a quick breakdown in terms of ours as well as many other restaurants pricing models.
+$1.00 Gross income into the register
-$0.09 take an immediate 9% and give it to New York State for sales tax.
-$0.30 for employee wages, most restaurants aim for a 30% payroll cost vs gross sales. Most are actually higher.
-$0.15 on average we pay 15% of our gross to utilities, ie water gas electric
-$0.02 for insurances. Restaurants and bars carry lots of liabilities from fire, to disability to general liability all the way to workplace injuries. Basically when you're serving the public and employing the public you need to be insured to your eyeballs.
-$0.02 property/city taxes. Some people say that you never really own your property, you just lease it from the government.
-$0.05 mortgages, maintenance, service, repair, upgrades. The restaurant industry requires that you use a lot of equipment. From computers for the front of the house, to freezers, stoves, etc for the back of the house. Then there are repairs and updates and paying for the building in general.
-$0.33 Cost of Goods Sold. Our target for pricing is so that every meal you have, the items you consumed cost 33% of what you paid for. Most places target this 33% to be the standard. This factor is not a variable and the prices customers pay are not an arbitrary number. They are formula driven to fit this percentage so that restaurants can maintain a profit margin.
So add those up, you get $0.96 of expense for every dollar you receive in the restaurant industry. Leaving you with only $0.04 in profit out of that $1.00 payment.
Now Uncle Sam comes along and takes his cut in the form of corporate income tax. Which as of April 1, 2012 is the highest in the world at just over 29%. Meaning that of your $0.04 profit, the government gets $0.01, leaving you with $0.03 net profit.
So in real terms what does this mean? Say you have a seemingly successful restaurant that grosses $1,000,000 this year... Which for all intents and purposes is a very successful year. You as the business owner walk home with a whopping $30,000 for the year. Not horrible but certainly not going to get you that private jet you had your eye on when you opened your restaurant.
Oh and by the way, you'll probably be putting in up to 80 hour work weeks on a regular basis to earn that $30,000 and to make sure employees are not giving away your shirt.
Side Note: If you were keeping track, you might have noticed that the Government gets $0.10 out of every $1 you make. So in my example where the business grosses $1,000,000 and nets only $30,000... Uncle Sam gets $100,000 just for being a nice guy... And if you don't give him his due cut, he takes your Restaurant.
1. Expensive
2. Overpriced
3. Pricey (as in 'a bit pricey')
4. Reasonable
No one will ever use terms such as 'fair' or 'accurately priced' and God forbid anyone ever refer to a place's prices as being 'cheap.' I think this is mostly due to not understanding where the money goes that they spend.
I actually have lots of thoughts on this but I'll save those for another post some day. However I do want to quickly review the general costs associate with every dollar that comes into the registers.
So have you ever wondered where the money you spend at a Restaurant goes? How much of it is profit versus expenses? Well here is a quick breakdown in terms of ours as well as many other restaurants pricing models.
+$1.00 Gross income into the register
-$0.09 take an immediate 9% and give it to New York State for sales tax.
-$0.30 for employee wages, most restaurants aim for a 30% payroll cost vs gross sales. Most are actually higher.
-$0.15 on average we pay 15% of our gross to utilities, ie water gas electric
-$0.02 for insurances. Restaurants and bars carry lots of liabilities from fire, to disability to general liability all the way to workplace injuries. Basically when you're serving the public and employing the public you need to be insured to your eyeballs.
-$0.02 property/city taxes. Some people say that you never really own your property, you just lease it from the government.
-$0.05 mortgages, maintenance, service, repair, upgrades. The restaurant industry requires that you use a lot of equipment. From computers for the front of the house, to freezers, stoves, etc for the back of the house. Then there are repairs and updates and paying for the building in general.
-$0.33 Cost of Goods Sold. Our target for pricing is so that every meal you have, the items you consumed cost 33% of what you paid for. Most places target this 33% to be the standard. This factor is not a variable and the prices customers pay are not an arbitrary number. They are formula driven to fit this percentage so that restaurants can maintain a profit margin.
So add those up, you get $0.96 of expense for every dollar you receive in the restaurant industry. Leaving you with only $0.04 in profit out of that $1.00 payment.
Now Uncle Sam comes along and takes his cut in the form of corporate income tax. Which as of April 1, 2012 is the highest in the world at just over 29%. Meaning that of your $0.04 profit, the government gets $0.01, leaving you with $0.03 net profit.
So in real terms what does this mean? Say you have a seemingly successful restaurant that grosses $1,000,000 this year... Which for all intents and purposes is a very successful year. You as the business owner walk home with a whopping $30,000 for the year. Not horrible but certainly not going to get you that private jet you had your eye on when you opened your restaurant.
Oh and by the way, you'll probably be putting in up to 80 hour work weeks on a regular basis to earn that $30,000 and to make sure employees are not giving away your shirt.
Side Note: If you were keeping track, you might have noticed that the Government gets $0.10 out of every $1 you make. So in my example where the business grosses $1,000,000 and nets only $30,000... Uncle Sam gets $100,000 just for being a nice guy... And if you don't give him his due cut, he takes your Restaurant.
No comments:
Post a Comment