MATH IN THE RESTAURANT BUSINESS:
An Interview With Restaurateurs
Editor's Note: Bari S. ('16) interviewed two restaurateurs to gain insight into the finances of the restaurant business.
Writer's Note: I interviewed Joe Secondino, a co-owner of Heights Cafe in Brooklyn, and Andrew Schnipper, from Schnipper Restaurants to talk about what it’s like to deal with finances, rent, covers, food costs, price points, and other math involved in the restaurant business. I’ve been very interested in these concepts from watching Restaurant Startup and Shark Tank.
How do you figure out food costs?
JS: To figure out the food costs, first add up the total cost of ingredients (plus salt and pepper), then divide by the portion size in ounces. For example, for a batch of crab cake, the total cost is $50 for a whole 32 ounces. So you divide $50/32 ounces to get the per ounce cost. Then you multiply the per ounce cost by the portion size (in ounces) to get the food cost for that dish.
AS: Food cost is figured by taking your sales and dividing it by the amount of food you purchased. So if your sales were $100,000 and you purchased $25,000 worth of food, your food cost is 25%. The one factor that also must be applied is inventory. Inventory for us is taken once at the end of every month and it is essentially the value of all the food we have on hand (the meats, groceries, etc.). The difference between the current month's inventory and the previous month's inventory gets added (or subtracted) to your purchases when figuring food cost. In the above example, if my current inventory were $10,000 and my previous inventory was $8,000, then I have an extra $2,000 worth of inventory and I deduct $2,000 from my total purchases for the month when figuring out my food cost.
How do you decide what price an item should be?
JS: The markup is usually close to 30% but don’t go over 35% above the food cost.
AS: We aim to have our food cost be 25% but we also look at what we think is a fair price for an item. Some things we charge a price to have a lower food cost (fries and soda). Other items are expensive like fish tacos and we can only charge so much for those so we run a higher food cost on them. In the end, we hope it all averages out to 25%.
How do you decide when to make something yourself or when to buy it from a supplier?
JS: Joe recently decided to put mini-muffins in the bread basket so he was looking for a supplier. He said that he could either buy mini muffins that aren’t as fresh but are 25 cents each or he could buy a frozen batter at a cost of 15 cents per ounce and make fresh muffins. Although the frozen batter is more costly, it is a better product and therefore more worthwhile.
AS: Every restaurant is different but for us, we will only buy finished ingredients if we can't make them better ourselves. A good example is bread - there are great bread bakeries in NYC and it's better for us to buy from them than make it ourselves.
How do you figure out labor costs?
JS: The payroll should not exceed 35% of the total gross sales of the restaurant. The top 3 paid employees in order are: the chef, the sous chef and the manager.
AS: Labor is figured the same way food cost is - you divide the sales by the total cost of your payroll.
How can you estimate how many covers you will do in a day? (A cover is one diner)
JS: Heights Cafe has a software program called a Point of Sale System which is helpful for knowing how much food to order, product history (most and least sold dishes), and which days are busier than others.
AS: We are quick service and don't look at "covers" (that's a full service term). [1] We estimate sales for any given day by what they did on that day from the previous year and we look at current sales trends and the weather.
[1] A quick service restaurant just means that the customers are served faster, eat faster and leave faster.
How do you make up for mistakes or slow services? How does the cost slow down business?
JS: When configuring a budget for a restaurant, it is a good idea to build in a small percentage for gifts. For example, if a family is not enjoying themselves, giving them a complimentary dessert or a 20% off coupon for their next meal.
AS: We try to make guests happy always. So we often send over something on us, give a gift card, or an outright refund if we make a mistake or the service is slow. When you have to remake food, it slows down the kitchen because they aren't making new orders at that time.
How do you make up for slower days or months?
JS: For a restaurant, Monday - Wednesdays are usually slower days and February is usually the slowest month. Directly mailing coupons to get people to come during bad months is the best way. Also a happy hour from 4-7 pm is a good way to bring people in.
AS: There is no way to make up for lost or slow sales. You just have to keep your costs as low as you can to make it through the slow times.
What do you look for when opening up a new property?
JS: Location is the most important thing. A good location has lots of foot traffic and is surrounded by an area that will bring people in for lunch and dinner. Also, a former restaurant is best because otherwise the space must be renovated to include a kitchen vent, heating and air conditioning, bathrooms and open space which can be costly.
AS: we look at the foot traffic, demographic of the neighborhood (are there lunch, dinner, or weekend customers - maybe all 3). We also consider how much it will cost us to build out the restaurant. The more we have to invest, the more we have to want the location and believe we will make money.
How do you figure out how much your business is worth?
JS: 2 ½ to 3 times the annual net profit.
AS: We don't do this regularly, but typically businesses are valued as a multiple of their yearly profits.
How do you figure out the gross earnings/ profit margin?
JS: The total revenue minus the expenses divided by the total revenue is equal to the profit margin. (expenses - revenue) / expenses = profit margin.
AS: I believe gross earnings are typically your sales less your cost of goods. But we look more at net earnings which is literally how much we do in sales less all our costs.
JS: To figure out the food costs, first add up the total cost of ingredients (plus salt and pepper), then divide by the portion size in ounces. For example, for a batch of crab cake, the total cost is $50 for a whole 32 ounces. So you divide $50/32 ounces to get the per ounce cost. Then you multiply the per ounce cost by the portion size (in ounces) to get the food cost for that dish.
AS: Food cost is figured by taking your sales and dividing it by the amount of food you purchased. So if your sales were $100,000 and you purchased $25,000 worth of food, your food cost is 25%. The one factor that also must be applied is inventory. Inventory for us is taken once at the end of every month and it is essentially the value of all the food we have on hand (the meats, groceries, etc.). The difference between the current month's inventory and the previous month's inventory gets added (or subtracted) to your purchases when figuring food cost. In the above example, if my current inventory were $10,000 and my previous inventory was $8,000, then I have an extra $2,000 worth of inventory and I deduct $2,000 from my total purchases for the month when figuring out my food cost.
How do you decide what price an item should be?
JS: The markup is usually close to 30% but don’t go over 35% above the food cost.
AS: We aim to have our food cost be 25% but we also look at what we think is a fair price for an item. Some things we charge a price to have a lower food cost (fries and soda). Other items are expensive like fish tacos and we can only charge so much for those so we run a higher food cost on them. In the end, we hope it all averages out to 25%.
How do you decide when to make something yourself or when to buy it from a supplier?
JS: Joe recently decided to put mini-muffins in the bread basket so he was looking for a supplier. He said that he could either buy mini muffins that aren’t as fresh but are 25 cents each or he could buy a frozen batter at a cost of 15 cents per ounce and make fresh muffins. Although the frozen batter is more costly, it is a better product and therefore more worthwhile.
AS: Every restaurant is different but for us, we will only buy finished ingredients if we can't make them better ourselves. A good example is bread - there are great bread bakeries in NYC and it's better for us to buy from them than make it ourselves.
How do you figure out labor costs?
JS: The payroll should not exceed 35% of the total gross sales of the restaurant. The top 3 paid employees in order are: the chef, the sous chef and the manager.
AS: Labor is figured the same way food cost is - you divide the sales by the total cost of your payroll.
How can you estimate how many covers you will do in a day? (A cover is one diner)
JS: Heights Cafe has a software program called a Point of Sale System which is helpful for knowing how much food to order, product history (most and least sold dishes), and which days are busier than others.
AS: We are quick service and don't look at "covers" (that's a full service term). [1] We estimate sales for any given day by what they did on that day from the previous year and we look at current sales trends and the weather.
[1] A quick service restaurant just means that the customers are served faster, eat faster and leave faster.
How do you make up for mistakes or slow services? How does the cost slow down business?
JS: When configuring a budget for a restaurant, it is a good idea to build in a small percentage for gifts. For example, if a family is not enjoying themselves, giving them a complimentary dessert or a 20% off coupon for their next meal.
AS: We try to make guests happy always. So we often send over something on us, give a gift card, or an outright refund if we make a mistake or the service is slow. When you have to remake food, it slows down the kitchen because they aren't making new orders at that time.
How do you make up for slower days or months?
JS: For a restaurant, Monday - Wednesdays are usually slower days and February is usually the slowest month. Directly mailing coupons to get people to come during bad months is the best way. Also a happy hour from 4-7 pm is a good way to bring people in.
AS: There is no way to make up for lost or slow sales. You just have to keep your costs as low as you can to make it through the slow times.
What do you look for when opening up a new property?
JS: Location is the most important thing. A good location has lots of foot traffic and is surrounded by an area that will bring people in for lunch and dinner. Also, a former restaurant is best because otherwise the space must be renovated to include a kitchen vent, heating and air conditioning, bathrooms and open space which can be costly.
AS: we look at the foot traffic, demographic of the neighborhood (are there lunch, dinner, or weekend customers - maybe all 3). We also consider how much it will cost us to build out the restaurant. The more we have to invest, the more we have to want the location and believe we will make money.
How do you figure out how much your business is worth?
JS: 2 ½ to 3 times the annual net profit.
AS: We don't do this regularly, but typically businesses are valued as a multiple of their yearly profits.
How do you figure out the gross earnings/ profit margin?
JS: The total revenue minus the expenses divided by the total revenue is equal to the profit margin. (expenses - revenue) / expenses = profit margin.
AS: I believe gross earnings are typically your sales less your cost of goods. But we look more at net earnings which is literally how much we do in sales less all our costs.
