Introduction

This chapter will lead you through what can be for many people, a confusing minefield of terminology and business planning complexity. This does not need to be the case. There are several forms to download that will help everything in simple straightforward terms that you need to know to make sure you are actually making profit with your new food offer.

This phase of the course will help you start look at opportunities with more of a critical eye. You will be able to see the financial implications of different types of food offer for the customers you have identified, without actually having to commit any cost to trying a dish idea. Take your time to make sure you fully understand every stage and the significance of each download before moving on.

Controlling costs

It is vital to control costs in any business. In the pub industry it is one of the few things we can have a degree of control over. If you have tight controls on the money going out and make sure it is spent on the right things at the right time and in the right place, then you give yourself a far better chance of sustaining profitability over the short and long term.

In order to do this, and before we spend anything, it’s essential to have fully thought through you food offer. In the previous chapter we started to look at the process of defining the food offer (what times and days do you want to serve food, who to, what type of food etc).

We considered differentiating the food offer (what is it that makes you unique?), determining factors (what skills do you have; what is the size and functionality of the kitchen; where your pub is; how many people can you accommodate; what is your customer base). And finally we considered defending your offer (being aware of competitors), delivering your offer (getting the kitchen in shape), and describing the offer (menu writing). Now it is time to look at things in more detail. Let's start with looking at the basics of a financial plan.

Financial plan basics

Pizza example used in the video:

As an example let’s consider the pizza used in the video where Marcus is excited by the profit potential of the dish. Tony breaks the financials of the dish down and it quickly becomes clear that the profit margin is much less than Marcus first anticipated.

Pizza selling price = £4.95
Minus VAT = £0.83
Net income = £4.12
Food cost @ 50% = £2.06
Gross profit (GP) = £2.06
Wages @ 22% = £0.90
Operating profit before overheads = £1.16

Forecasting your pub profit potential

Action: Access document (Pub food operating profit calculator). - attachment to your welcome email.

Revisit download form (Pub Food Plan) from the chapter 1 ready to work through the figures to see if your potential offer is going to make you any money.

Work your way through the calculator which will calculate all of the figures for you so you can see the costs associated with your planned food offer and, ultimately, whether it will make profit. It’s worth noting that changes in your food offer will usually have minimal impact on your overheads. The most affected overhead is usually energy costs due to increased use of kitchen equipment.

Key Definition: The dish costing model

In this context and put simply, a dish costing model is a way of keeping track of what you will spend in the production of each menu item to allow you to set appropriate selling prices and calculate what gross profit you should achieve from each dish you are thinking of putting on your menu.

Getting your dish costing models right

It is vital to get your cost models right so you ensure you are making the required gross profit on each meal you sell. Once you have the cost price calculated you can then set the selling prices at the right level for your target customers. Get the selling prices wrong and you will put people off, and you might not cover your costs.

Action: Access document (Dish costing model) - attachment to your welcome email.

This download shows you an example of a completed costing and includes a tab to cost your own dishes.

Staff costs

One very important element to consider when working out the costs of your potential new food offer is the impact of changes in operation on staff costs.

Action: Download (Weekly staff rota).

This download will enable you to calculate any potential additional staff costs associated with any new potential food initiatives. As shown earlier in ‘The basics of a financial plan’ you will see ideally your staff costs should be 22% or below for any new initiatives to ensure you make a reasonable net profit.

A quick reminder of the basics of a financial plan:

Key Definition: Turnover:

The amount of money (also known as sales, revenue, or income) a business receives in a certain period.

Key Definition: Gross Profit (GP):

Net turnover minus the cost of sales

Gross profit calculator:

Action: Access document (Gross profit and dish costing and selling price calculator) - attachment to your welcome email.

This download will perform 3 sets of calculations for you:

• Calculate your Gross Profit from cost and selling prices of dishes
• Calculate your Menu Price from cost of dishes and the amount of GP you would like to make
• Calculate how much you can spend on a dish from the price you would like to put it on your menu at

Key Definition: Value Engineering:

A consumer focussed way of working out the cost of your dish taking into account who your customers are, how much they will pay for a dish and then working backwards to how much you can spend on a dish.

Knowing how much your customers are willing to pay for a dish means you can work backwards to how much you are able to spend on ingredients, labour and overheads in order to achieve the turnover and Gross Profit (GP) you require.

Price setting

It is critical to be able to appeal appropriately to the customer you are targeting. If you understand your customers and your potential customers then you will be able to set prices accordingly and ensure your promotional materials and all publicity within the venue are congruent and send out the right messages.

Key things to consider:

1. Are your customers/potential customers looking for a cheap meal or are they looking for good value? There is a world of difference. Look back at your customer scoping activity for reference
2. What are your competitors offering? Look back at your competitor benchmarking activity.
3. Are you fully aware of all the costs (including the hidden ones!) of running your business? Look at your Business Plan (assuming you have one) as a starting point and then move onto the activities below.

Additional resources:

Action: Access document (Predicted gross profit template) - attachment to your welcome email.

This will help you calculate your predicted GP for your entire menu, when you have completed all your dish costings and have set your selling prices, you will need to forecast typical sales volumes of each menu item.

Action: Access document (Weekly energy cost model) - attachment to your welcome email.

This download will help calculate your running costs for different appliances in your kitchen.

Monthly operating reports

Action: Access document (Monthly operating report) - attachment to your welcome email.

This download will help you get to grips with the best way to financially review your business performance.

You should look to set up your own Monthly Operating Report to give you a really clear view of how you are performing on a month to month basis compared to last year and budget. The elements you can look at in detail are sales, spend per head, food covers, cost of sales, gross profit and wages.

This tool will give you the ability to keep a really tight grip on your finances. It will only work if you set up a reporting system and use it regularly!

Optimising gross profit (GP)

This next section considers how to minimise waste, portion control, and supplier benchmarking.

Food waste

A significant amount of your operating cost is tied up in ingredient costs.

Consider the following breakdown of food waste and what you can do to minimise these costs:

• Food preparation (45%)
• Customer plates (34%)
• Spoilage (21%)

Portion control

Portion control is critical to ensure you:

• Consistently deliver the same agreed dish build to your customers
• Keep food costs under control
• Achieve the required Gross Profit for each dish and your menu and business

Ways to ensure good portion control are:

• Use specific kitchen spoons / ladles / measuring jugs etc for portioning products
• Ensure kitchen staff know the agreed portions - have a copy of the dish costings visible in the kitchen
• Check regularly agreed portions are being served

Supplier benchmarking

You need to be 100% sure your supplier is giving you the best price on the products you are buying, so regularly check alternative supply price options for similar products and discuss with your supplier to get the best deals.

Tips for gaining existing customer support

You need to get your existing customers onboard with any change, and ideally actually excited about your plans.

• Talk to your customers
• Tell them about your plans and ask them what they think
• Get them involved in suggesting menu items
• Run a competition for an original recipe/burger/sauce etc
• Invite them to tasting days
• Organise a soft launch and invite them as VIPs

Focus your efforts and activities on the dishes that appear to represent good value but that are actually high margin dishes; meals that give you the most return for the minimum effort and cost. Examples of high margin dishes are pizza and premiumised burgers.

Chapter summary

By the end of this chapter you should have developed the following understanding and insights:

• How to ensure any proposed changes to your operation that you are thinking about will positively impact on the business
• How to ensure you make the gross profit needed in your business
• The importance of getting dish cost prices right
• How to set appropriate selling prices on your menu
• How to optimise staff costs and minimise food related overheads

What next?

There is a lot to take onboard in this chapter and several downloads to get to grips with. Take your time and ensure you have understood the finance and costing aspects of a pub food offer. Remember to complete the chapter action plan before moving on to Chapter 3.