Running a cafe can be a lot of fun and a lot of work. Getting the financial side of the cafe working is a real art. After our recent look at how much it costs to make a cup of coffee, we thought it was worth looking at how food and beverage costs match up with wage costs to get a cafe running successfully.
There are three key numbers you need to know in order to get your cafe running right:
- Total revenue - how much you sold (ex GST!)
- Cost of goods percentage (COGS) - what it costs to make the things you sell, as a percentage of total revenue
- Wages percentage - your total wages costs, including the owner's, as a percentage of total revenue
Let's look at each in more detail...
1. Total revenue
Total revenue is all the cafe sales, not including GST. Don't make the mistake of thinking your total sales for the day are all yours — the tax office wants their 10%.
2. Cost of goods
This is the cost of making the product as a percentage of the sell price. This depends on your operation, but as a rule COGS percentages range from 25% to 35%.
Example: bacon and egg roll
| Item | Cost |
|---|---|
| Roll | 75c |
| Bacon (one rasher) | $1.25 |
| Egg | 60c |
| Sauce / chutney / butter | 25c |
| Total cost | $2.85 |
If we sell it for $11.00, take off one dollar for GST, and we have a sell price of $10. $2.85 divided by $10 is 28.5% cost of goods.
If you add another rasher of bacon, total cost is $4.10 and you are at 41% COGS - and run the risk of selling at a loss.
What counts as a good COGS percentage depends on the operation. A purely takeaway coffee hole-in-the-wall setup will generally run around 25%, as most of their trade is coffee, which has a low COGS percentage but a low average customer spend. A full-service cafe with a sophisticated food offering will be closer to 30%.
3. Wages percentage
This is the cost of wages each week as a percentage of revenue. For most cafes the aim is to get to between 30% and 35%. If wages get up to 40%, then food costs need to be closer to 25% - which can happen in fine dining restaurants.
Putting it together
Put these together and you have a reasonably profitable cafe:
- 30% food costs
- 35% wages
This totals 65% and leaves the remaining 35% for rent (normally 10% or less), insurance, power, gas and other overheads - which hopefully leaves around 10% net profit for the hard-working owner to make it all worthwhile!
It's a lot of risk and even more work, for a little bit of reward - so next time you're in a cafe, make sure to be nice to the hard-working staff and owner(s) :)
