Start with what one meal costs
Pick your best seller and write down what goes into one. A spreadsheet tab for each meal is enough, with a row for each ingredient: the amount in one meal, and what that amount costs. Then add the packaging and the labor. Here is a sample chicken bowl.
Sample data.
For anything you buy by the case, divide the price by how many you get. A case of 300 containers with lids at $135 is $0.45 each. Add a $0.10 label, and the packaging line is $0.55. Rice, oil and spices work the same way: the price of the bag, divided by what is in it, times what one meal uses.
Cost meat after cooking. Chicken loses weight in the oven, so a pound you buy is not a pound you serve. Weigh one batch before and after cooking. In this sample, 10 pounds of raw chicken cost $32 and came out at 7 pounds. $32 ÷ 7 is $4.57 a cooked pound, and a 6 oz portion is 6/16 of that: $1.71. At the invoice price of $3.20 a pound, the same portion looks like $1.20.
For labor, use a normal week. Add up the paid kitchen hours and multiply by what an hour really costs you, payroll taxes included. Then divide by the meals you made that week. In this sample, three people work 8 hours at $18 an hour, which is $432. Over 320 meals, that is $1.35 a meal.
Count your own kitchen hours too, at what you would pay someone else. Otherwise the meal looks better than it is, and you find out the day you hire someone.
Work out the gross margin
Gross margin is the share of the price left after the meal's own costs.
Gross margin = (price − meal cost) ÷ price
($13.00 − $5.50) ÷ $13.00 = 57.7%
Markup is a different number, because it divides by the cost: $7.50 ÷ $5.50 is a 136% markup on this same bowl. If you price by doubling your cost, your margin is 50%.
Use what customers really paid. A 10% discount code takes the bowl to $11.70. The cost stays at $5.50, so the margin falls to 53.0%.
Run this for every meal on the menu, and check your most expensive proteins first. If they sell for about the same price as chicken, that is where a margin goes missing.
Then work out the net margin for a month
Gross margin says what each meal leaves. Net margin says what the business keeps after everything else. Here is the same sample kitchen over a month of 1,300 bowls.
Sample data.
Net margin = (sales − all costs) ÷ sales
$1,800 ÷ $16,900 = 10.7%
Your kitchen hours are already in the meal costs. The pay line is for the rest of your work: the ordering, the customers and the books. If you leave it out, the money left over is not profit yet.
Leave sales tax out of your sales, because that money was never yours.
Is 10.7% good? There's no reliable benchmark for a kitchen your size, but as a rule of thumb, a net margin around 10% is good, and above 15% is strong. Two more questions help. Does what is left over cover a slow month or a new freezer? Is it going up from month to month?
This is kitchen math. Your accountant may group these costs differently, so use their version for your taxes.
Find your break-even
One more number is worth having: how many meals it takes to cover the month before you keep anything. Take every cost that isn't a meal cost, and divide by what one meal leaves you.
Break-even = monthly costs ÷ what one meal leaves
$7,950 ÷ $7.50 = 1,060 meals a month
That is about 245 meals a week, and this sample kitchen sells about 300. The gap is your cushion for a slow month. Card fees and the driver move with your sales, so treat this as a close estimate. Work it out again when your rent, your pay or your prices change.
What to change when a margin is low
- Raise one price first. Start with the meal that has the lowest margin. At $14.00, the sample bowl goes from 57.7% to 60.7%. Then watch that meal's orders for a few weeks.
- Charge for the expensive choices. A bigger portion or a better protein costs you more, so give it its own price.
- Check what the drive costs. If a delivery run costs $60 in driver and fuel and serves 20 orders, each order costs you $3. Compare that with your delivery fee, and with your minimum order.
- Buy from your orders. Food you throw away is still in your ingredient bill, so buy what the week's orders need.
The Eat Fresh Tech way
Here's how we get you the numbers for your margins.
Your margins and your ingredient prices stay in your own sheet. We give you the numbers from your orders to fill it, with no tallying by hand.
- How much food the week took. Enter each meal's recipe once and link the recipe to the meal. The Grocery List Report then adds up every ingredient for the menu's orders. Multiply by your prices, and you have the week's food cost.
- How many of each meal you sold. The Totals Report counts every meal and option on a menu. One click downloads the meal totals as a CSV for your sheet.
- What you really sold. The Monthly Sales & Tax report shows each month's discounts, tax, and gross and net sales, next to last year's. Your card fees come from your payment processor's statements.
- Changing prices. Bulk price editing changes many meals at once and downloads a CSV of the old prices. A meal's options can each have their own price, and delivery fees and order minimums are yours to set.