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### Author Topic: I Want My Money!!  (Read 6068 times)

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#### TXCraig1

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• Posts: 22988
• Location: Houston, TX
##### Re: I Want My Money!!
« Reply #20 on: December 11, 2013, 05:42:11 PM »
And how do you come up with that number in a hypothetical scenario? I thought gross margin(sales minus cost of goods) was cash flow?
I was reading where Scott told Walter that if he had a "storefront" he would sell 50 pizzas a day ,easy.
50 pizzas a day is not going to pay the bills if you are in high rent, large seating, full service,etc. place.
I was just wondering if anyone in a small mom & pop place had a # for how much the sale of one pizza actually gets to go in their pocket. I could then calculate a whole lot of other things if I knew that number.

You have to model your business put down on paper what you think will happen every day for a year - all your revenue and costs. Don't just make up numbers. Be granular. Start with the number of people you think will walk in the door. Estimate what the average customer will buy. Build a cost model based on that.

Cash flow may be sales minus cost of goods - if everyone pays in cash and you pay cash for your groceries every day. In any other case, there is a delay that affects your cash flow. If you have to wait 30 days for the credit card company to pay you, that affects your cash flow negatively. You don't pay rent or labor ever day - that helps cash flow. If you can get payment terms from a vendor. That helps cash flow. You can make tons of money and not have any cash to pay your bills if you are not collecting the cash in time to pay your bills.

Simply put, cash flow = gross margin (revenue - expenses) minus increases in receivables or inventory (or plus decreases in receivables or inventory) plus increases in payables (or minus decreases in payables) minus capital itmes needed to keep the business running such as new equipment, plates, glasses, etc.
"We make great pizza, with sourdough when we can, baker's yeast when we must, but always great pizza."
Craig's Neapolitan Garage

#### TXCraig1

• Supporting Member
• Posts: 22988
• Location: Houston, TX
##### Re: I Want My Money!!
« Reply #21 on: December 11, 2013, 05:47:02 PM »
Also, your pricing can make a huge difference. If your pizza costs a dollar less than people are willing to pay, and you sell 100 pizzas daily, then you're making \$100 less than you should make every day. Doesn't seem like a huge chunk of money, does it? Yeah, well that's \$36,500 a year difference. And if you're selling just 10 more pizzas per day, it's \$40,150 that you're not making every year just because your pizza is priced too low.

This is a really important point. Many people screw up trying to follow a rule-of-thumb like they should run a 33% food cost or something. As a result they either price too low and leave a bunch of money on the table as Ryan points out, or they price too high and don't sell enough to stay in business.

You have to understand your market. You need to think about how your volume will vary with price. When you do your homework, you will be able to model your business at different prices and thus estimate your profitability at different price points. Price where you expect the highest profit not where some rule-of-thumb says to price - not necessarily at the highest margin. Highest margin doesn't always = highest profit.
"We make great pizza, with sourdough when we can, baker's yeast when we must, but always great pizza."
Craig's Neapolitan Garage

#### TXCraig1

• Supporting Member
• Posts: 22988
• Location: Houston, TX
##### Re: I Want My Money!!
« Reply #22 on: December 11, 2013, 05:49:32 PM »
Thanks Rocks,
Food and labor costs....55% below what? The break even point and the other 45% goes to rent, utilites, etc.?

He means of every \$1 in revenue, your cost of food and labor should be \$0.55 or less. That leaves you \$0.45 to pay everything else - including yourself.
"We make great pizza, with sourdough when we can, baker's yeast when we must, but always great pizza."
Craig's Neapolitan Garage

#### TXCraig1

• Supporting Member
• Posts: 22988
• Location: Houston, TX
##### Re: I Want My Money!!
« Reply #23 on: December 11, 2013, 05:56:44 PM »
No.... how can a " lower priced HIGH profit percentage item' be better than a "Steak, for instance, has a high food cost, meaning a lower percentage of profit."    Where does this "REAL" profit kick in?
Thanks!

16oz NY Strip. Menu price: \$20. Food cost:  \$9. Food cost% = 45%. Profit = \$11.
Hamburger. Menu Price = \$9. Food cost: \$3. Food cost% = 33%. Profit = \$6.

The hamburger has a 27% "better" food cost but 45% lower profit.

I don't know about you, but I'll sell the steak to every customer that walks in the door. Run a food cost that the rule-of-thumb says is too high, and laugh all the way to the bank.
"We make great pizza, with sourdough when we can, baker's yeast when we must, but always great pizza."
Craig's Neapolitan Garage

#### gabaghool

• Posts: 551
• Location: GLASTONBURY, CT
##### Re: I Want My Money!!
« Reply #24 on: December 11, 2013, 06:14:01 PM »
Exactly my point when I say you can't deposit a margin% in a bank or use it to pay a bill. Cash is what matters. I'd rather make \$10 at a 20% margin off a customer than \$5 at 40%. All day long. Way too many people get hung up on margins. Are they important to understand? Yes, but like a rule-of-thumb, they can lead you to make bad decisions if you don't know what you are doing.

Craig
Youre better at writing...can you explain it.  what I mean is that you can make at GREAT PERCENTAGE on homemade onion rings.  Say, for s#\$*s and giggles, you end up with 50 percent profit on 7.99.  thats your onion rings.  Now, You charge 30 bucks for a steak, but you make 20 percent.  Thats 6 bucks.  I know its simplified, but that 6 bucks is still MORE than what you make on onion rings, even at 50% profit.  Again, I realize its more complicated than that...but I know YOU know what I mean.

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#### gabaghool

• Posts: 551
• Location: GLASTONBURY, CT
##### Re: I Want My Money!!
« Reply #25 on: December 11, 2013, 06:16:03 PM »
Ahh....i see youve done it....thanks.

Its a lot more of an eye opener than most people think....I remember the first time an long time old timer told me that.......at first, I was like all put off....untill I THOUGHT about it and realized that he was right.

YOU DEPOST CASH, NOT PERCENTAGES.

#### gabaghool

• Posts: 551
• Location: GLASTONBURY, CT
##### Re: I Want My Money!!
« Reply #26 on: December 11, 2013, 06:20:41 PM »
AGAIN, this is very, very simplified.....cause you have to take how many of each item is sold also.....see, this isn't as easy a business as it seems.......

#### Chicago Bob

• Posts: 12674
• Location: Durham,NC
• Easy peazzy
##### Re: I Want My Money!!
« Reply #27 on: December 11, 2013, 07:34:03 PM »
16oz NY Strip. Menu price: \$20. Food cost:  \$9. Food cost% = 45%. Profit = \$11.
Hamburger. Menu Price = \$9. Food cost: \$3. Food cost% = 33%. Profit = \$6.

The hamburger has a 27% "better" food cost but 45% lower profit.

I don't know about you, but I'll sell the steak to every customer that walks in the door. Run a food cost that the rule-of-thumb says is too high, and laugh all the way to the bank.
You're awesome dude...I appreciate your patience.
"Care Free Highway...let me slip away on you"

#### Tscarborough

• Global Moderator
• Posts: 4309
• Location: Austin, TX
##### Re: I Want My Money!!
« Reply #28 on: December 12, 2013, 09:26:19 PM »
Not only that, but the OH on a burger is about 3 times what it is on a steak.

#### pythonic

• Registered User
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• Age: 39
• Location: Pittsburgh
• It's Pizza Time
##### Re: I Want My Money!!
« Reply #29 on: December 12, 2013, 11:08:33 PM »
Are there any situations where a business' financial statement is public record.....like say, maybe if they got their business through an SBA minority loan or something like that? Sure wish I cold take a peek at the income statements of a couple pizza joints in my area.

You can.  Find a place that is selling their pizza joint and a lot of them will open their books for you.
If you can dodge a wrench you can dodge a ball.

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#### fazzari

• Posts: 1142
##### Re: I Want My Money!!
« Reply #30 on: December 13, 2013, 10:45:35 PM »
Just want to muddy this a bit Bob.  Cost accounting (even though it is a necessity), if not interpreted correctly can force managers to make wrong decisions.  And most of the time the problem is the allocation of costs to products sold.  I remember management consultants, who used to carry around little cards in their pockets with information regarding cutting prices on products.  It went something like this....did you know that if you are making 4% profit and you cut your prices 10 percent, you would have to increase sales x% to make the same amount of profit.  I'm not saying the information was wrong....but I think it ends up being the wrong way to look at things.

There is a term called "contribution Margin"....I think this is the "ideal" term and the "ideal" concept to learn if you really want to understand business.  The contribution margin is the amount of money left when you subtract totally variable costs from sales.  In a pizza business, the totally variable costs are food and maybe boxes.  So, the contribution margin "contributes" to the payment of all of your fixed costs and ultimately (hopefully?) a profit.  The reason that this is important to understand (in my opinion), is because it let's you know how valuable one more sale is, or it let's you know how much a lost sale harms the bottom line.  Every sale you make or lose affects the bottom line (in one way or another) by the contribution margin amount.
In regards to finding your most profitable product, it is not enough to know what the contribution margin of each product is....there is another factor..time.   For instance, a cheese pizza will have a different contribution margin than a loaded pizza....but which is most profitable.....how about figuring out how many cheese pizzas you can make and bake in an hour in comparison to the number of loaded pizzas and then checking the contribution margin per hour per product.  By knowing these kinds of things, you will know for instance which product to discount to increase sales.
Also Bob, if you can get a handle on what your fixed costs are and you know what your contribution margin is, it is simple math to figure out how much sales you need to break even.

The hard part is figuring who your customers are, and knowing why they will buy from you....and how much will they pay.

John

#### Chicago Bob

• Posts: 12674
• Location: Durham,NC
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##### Re: I Want My Money!!
« Reply #31 on: December 13, 2013, 11:17:42 PM »
Thank you John....that is premo info my man!
"Care Free Highway...let me slip away on you"

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