profit margin

[chocoera]

Just a general question....and i know i'll get a wide range of answers, seeing how we are all in different businesses (pastry, vs cake vs restaurant vs cafe vs chocolate shop etc) but in a chocolate shop scenario, what kind of profit margin are you looking for? I'm in the middle of quickbooks and yes, its only my first year in a retail store vs when i was just an internet business (that had very little overhead), so i know numbers will change after we get through the "start up cost hump"but as a whole, from what you've experienced or read about or know from a friend, what kind of number do you shoot for when comparing your gross sales with your net income (40% 60% 75%?) and then theres the actual operating cost after that which will affect your actual take home pay....but when it comes to gross sales # which becomes smaller after the packaging cost and stuff in invetory, cost of ingredients that go into your product etc, what kind of margin are you looking for? (you gross $40,000, but after the stuff that is deducted for the actual making of your products, maybe you only have $24,000 left etc...should you be looking for a number more like $28 or $30,000? or something like $34000? or maybe you're doing ok if you only have $20,000?) thoughts?

[gap]

I don't work for money with chocolate, but I do own part of a small business and, in my experience, those aren't the sort of questions you generally ask. If it were me, I'd be playing those sort of cards pretty close to my chest.

Having said that, maybe others feel different

[MarkIsCooking]

You won't go to prison for this, but you are throwing a few terms around incorrectly. The difference between your product cost and the selling price is your 'gross margin'. In larger companies, the gross margin would be after (net of) the manufacturing labor. In smaller businesses, it's often not. I owned a cafe/bakery at one time, and I'd say (just 1 guy's opinion) that your gross margin before labor for labor intensive stuff like baked items or chocolate should be about 8o%. For example, the muffin that sells for $2.50 should have about $.50 cost of ingredients.

At retail, it's generally not practical to apply to the exact same percentage markup to everything you sell, it's more of a rule of thumb. Then, once in a while you can even get more on some items, but you'll need to get less on others. Of course, it's a great idea to promote high margin items, which helps your bottom line.

There are various rules of thumb for various line items in the food business. Here's an example of one, but by no means does this work in all situations. You would do well to have a template something like this to illustrate what you want your model to look like and then follow actual results at least month by month. I hope this helps.

Gross Sales. $100

Cost of goods. 25

Payroll. 35

Rent/occup/util 10

Marketing. 5

G&A (insur,etc) 10

Package/bags. 5

Profit b4 tax. 10

Edited July 19, 2010 by MarkIsCooking (log)

[chocoera]

that is very very helpful....just learning my way around quickbooks and all the terms get jumbled up in my head...i have an accountant on staff who is helping get everything organized and on paper/computer but i was just wondering people's opinions, like i know in a service industry, such as photography, there is not a lot of product or inventory needed, its mostly time getting paid for ie: a 4x6 to the average photographer is a couple dollars, but can easily charge $8-10 for one, but a photography package may be $3000 just for the time it takes to take photos and then edit, so you're seeing a larger margin than say a baker, who has to factor time, product packaging, and ingredients before a final product is seen for the customer....

as for the figures above, don't worry, just random numbers i threw out as they popped in my head...who knows, i could be making millions :0) *ha ha ha* just kidding, but don't worry, they were completely fictional, just trying to illustrate a story

thanks for your help though, i will be continuing my pow-wow with my accountant, just wanted an opinion or two

[sugarseattle]

Yeah, sometimes Accountants and Bookkeepers are not versed in "business" numbers and such. I'm not saying all accountants don't know what the numbers mean, it's just not exactly part of their job description. Their job is to get you the numbers, it's yours to analyze them, which it seems you are doing.

It's important to understand the difference between a profit and loss statement and a balance sheet. You should be running each of these reports once a month and then you can compare and contrast them to see how things are shaping up. However, it may be difficult to track your ingredient costs, as say one month you might stock up on chocolate and then the next month, you might not buy any chocolate. For my first few years, I was paying off our loan, so it looked like I had huge profits; but I didn't have a good paycheck to show for it.

I believe there is a resource, most likely at a local library, which something called "trade directory" or something where they list the breakdown of each industry and how the different categories of expenses should stack up.

The small business administration offers free business counseling which I have found useful. Also, perhaps in your area, there might be basic small business accounting classes you might take to understand basic concepts. You may not end up doing your own bookkeeping, but it is pretty important to understand the concepts.

One note, I have found it EXTREMELY Helpful to spend one day a week looking at the books. Previous, I would do a little bookkeeping here and there whenever I stepped upstairs, and then I never did important stuff like marketing.