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Café Economics

25 April 2016

I was talking to one of our café customers recently about cafe economics and profitability. We were talking about the many and varied skills café owners have to have in addition to keeping an eye on the bottom line. Fill in on the cold side in the kitchen? Sure. Barista is sick and you need to take a shift on the machine? You bet. Need to fix a cool room motor with some alfoil, gaffa tape and a tea spoon? Onto it. Counsel a heartbroken waiter? Yup. Oh and then there is the customers to look after. Some days just getting the doors open is a win.

With all of these roles to juggle it is no wonder that the bookkeeping gets put on the back burner. Even more so the analysis of the Profit and Loss statement should you have the books up to date. However every café and restaurant business lives or dies by their P & L so it really does need to be focussed on.

So I thought I would pass on some wise words of advice that were given to me when I first opened my café in 1997. The rule of thirds. Try and keep your wages at 33% (including the owners wages), your food and beverage costs (Cost of Goods sold) at 33% and out of the final third comes rent, insurance, power, gas and ……you get to keep the balance of the last third, hopefully around 10%. This becomes your net margin. For every dollar received you get to keep ten cents.

In reality few café operators get their wages to 33%. But 35% to 37% is achievable. It does of course depend on your operation. A restaurant with table service will have higher wages but better food costing. While a takeaway operation might have higher food costs and lower wages. So as long as the mix of wages and cost of goods comes to 66% or under the analysis still works.

Cafe economics is a juggle but with some clever rostering, close monitoring of wastage (check what is in your Otto at the end of the day!) some of the percentages can be improved without compromising on the value you offer customers.

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