Not making enough money?

So you run a food or hospitality business and you're not making enough money. Why is that? Either your sales are too low, your profit is too low, or both. This post is going to focus on the profit side of things. If your percentage profit is in the single figures, i.e. 1-9% profit, it is likely that you aren't earning a living commensurate with the time and effort you are putting in to your business.

If you read my last blog post you'll know that the expenses in your business can be broken down into three broad categories: cost of goods, staff costs and operational costs. If the profit in your business is too low, one, or all, of these categories is too high.

Let's start with cost of goods. These are your ingredients or raw materials costs. There are no definitive rules, but you should expect these to be somewhere between 20-35% of your revenue. To put it another way, for every £100 of sales that your business generates, you should expect to spend £20-£35 on cost of goods.

Staff costs are self-explanatory. That's all the costs related to employing your team. If you're a team of one, or run your business with a partner, it might be the case that you don't have any staff costs. If, however, you want to scale past a certain point, staff become a necessity. Once you get into the realms of employing people, your staff costs are probably going to come in at 30-45% of your revenue.

Operational costs are your overheads, things like rent, rates, utilities etc. There tends to be less wriggle room with the costs in this category. There may some things you can eliminate/reduce but operational costs are often more fixed. 10-20% is the ballpark you are looking at here.

What matters is not the specific percentage in each category, but the interplay of the three. If your cost of goods is at 25%, your staff costs at 40% and your operational costs at 15% then happy days, you are making a very respectable 20% profit. If that 20% profit isn't enough money, then you need to switch your focus to increasing your turnover (more of that in a future post). If, on the other hand, your cost of goods is 35%, your staff costs are 45% and your operational costs are 20% then that leaves your profit at a rather distressing 0% and you almost certainly don't want to be running a business with 0% profit for too long.

If you are looking at a displeasing small profit percentage, look at each of those three areas and try and work out which one or two are the problem areas. It might be your cost of goods and your staff costs both need to come down by 5% in order to give your profit a boost. It could be that if you look over your figures historically that you can see your cost of goods has gradually crept up from 25%-30%. This could be remedied by a combination of increasing your prices and reducing your waste. There are lots of potential issues and lots of potential solutions to the problem of a too small profit but identifying these starts with knowing what your percentages currently are.

If you're reading all of this and feeling completely overwhelmed have a look at my ‘Work with me’ page for ways that I could help.