Magic Numbers: The trio of ratios that define your hospo business's fate.

Welcome to 'The Hospo Whip' – Your monthly recipe for hospo success.

Business can often feel overwhelming, it can be challenging to gauge if you're heading in the right direction. In the realm of food and beverage ventures, 1,984 things demand your attention every day, and the constant emergence of new challenges can make it difficult to know where your focus should lie.

This month, we're diving into the fundamentals of running a thriving food and beverage business. We're talking about the three critical metrics for success: Food cost percentage or CoG's (CoG %), wages percentage (wages %), and rent percentage (rent %) in comparison to turnover.

It's not to say that these are the only things that matter, of course you should also have a keen eye on staff happiness, food quality, and guest experience. But the fact of the matter is that you're in business to pay your bills, support your family, and save for retirement. And in order to do that, your business must be profitable first. In essence, profitability isn't the sole goal but rather the cornerstone that enables you to achieve your broader aspirations. It empowers you to reinvest in your business, improve food quality, elevate customer experience, and ensure the well-being of your team.

1. Food Cost Percentage or CoG's (CoG %) - Your Profit Recipe

CoG % reveals the percentage of revenue spent on ingredients and packaging. For instance, if your CoG % is 30%, it means you're spending $0.30 of every dollar earned on product costs.

How to calculate it: Cost of goods sold divided by sales/revenue multiplied by 100 (to get your percentage).
What to aim for: 25 -30 %. 25% has always been the benchmark and should remain as such. Anything over 30% requires a review of where things are going wrong

2. Wages Percentage (Wages %) - Managing Your Crew

Behind the scenes of every successful hospo establishment is a dedicated team. Wages % measures the portion of your revenue allocated to staff salaries and benefits. A healthy Wages % ensures you're neither overstaffed nor scrimping on the talent that brings your vision to life.

How to calculate it: Wages divided by sales/revenue multiplied by 100 (to get your percentage).
What to aim for: We're seeing.... 28%

3. Rent Percentage (Rent %) - Location value

Location can be a double-edged sword. A prime spot can attract more customers, but it can also drain your resources. Rent % calculates the percentage of revenue that goes into leasing your space. It's a crucial metric for understanding the cost-effectiveness of your chosen location.

How to calculate it: Rent divided by sales/revenue multiplied by 100 (to get your percentage).
What to aim for: Your goal is under 8% and anything over 10% should be a cause for concern, or a frank discussion with your landlord.

Why These Ratios Matter

CoG % Analysis: A sudden increase in CoG % could indicate rising ingredient costs unnecessary wastage, incorrect record keeping, theft, incorrect food costing / menu pricing. Monitoring this ratio helps you maintain consistent quality while controlling expenses.
Wages % Insights: If your Wages % spikes, it may be time to re evaluate your staffing strategy. Are there more efficient ways to manage shifts or cross-train employees? This ratio keeps labour costs in check.
Rent % Considerations: Should Rent % start encroaching on your revenue, it's time to assess the location's impact on profitability. Can you negotiate better lease terms, relocate or diversify income streams? Alternatively, think about what else can be done to increase turnover, go back to your business plan, what is your point of difference?

Essentially, these ratios serve as early warning systems, monitoring these ratios will give you early insights into when things might be starting to slip.

In future editions of "The Hospo Whip," we'll delve into actionable strategies to optimize these ratios. From negotiating with suppliers to implementing staff training programs, we've got your back. Our goal is to equip you with the knowledge and tools to steer you to greater profitability. But for now, lets make sure that our financial reporting makes it easy to see these ratios, and see how we're tracking against the benchmarks mentioned above.

These ratios aren't just numbers on a spreadsheet; they're your compass. So, stay with us, and let's chart a course for smoother, more prosperous seas ahead! 🚢🌟

Key Task for November: Ensure your financial reporting gives a quick, clear view of these essential 3 ratios, and put a recurring task in your diary to be monitoring them every week. Now's the perfect moment to set this up, especially before the hectic holiday season arrives. After all, you can't improve what you can't see!

-🍢🍡😋🍜 Weekly summer street food events kicking off in November!

Wondering where you’ll find the Bay’s best street food alongside locally brewed beer? November sees the kick off of "Dinner in the park" (Matua) and "Dinner in the domain" (Papamoa). Both foster a sense of community as people from all walks of life gather under the open sky to share delicious kai, crafty brews, and the beauty of the Bay's natural surroundings.

👍 DINNER IN THE PARK Dates: 26 November 2023 – 24 March 2024 Time: Sunday nights 5pm – 8pm Where: Matua Park, Hall Road, Tauranga

👍 DINNER IN THE DOMAIN Dates: 30th November 2023 - 28th March 2024 Time: Thursday nights, 5pm – 8pm Where: Papamoa Pony Club, 491 Papamoa Beach Rd, Papamoa Beach

📊 Hospo Market insights - November 2023

ABC Managing Director Chris Small hit the airwaves recently to talk with Mike Hosking about the record volumes of buyer interest we're seeing. The positive sentiment was later backed up by Hospitality NZ CEO Steve Armitage...

Key points

New Zealand is making a comeback on the world hospo map as new overseas arrivals drive up demand.
Enquiries from potential hospo buyers is nearly twice that compared to 2019.
Staff shortages have eased - 25% of accredited employer applications being processed are for chefs and cooks.
For hospitality business owners, now could be an ideal time to sell, capitalising on the growing demand.

🕺💃 Who are we?

We're Gina and Wayne, the ABC Business Sales BOP Hospitality Team! With Wayne's extensive global experience in hospo and Gina's diverse background in entrepreneurship, we're experts in the sale of hospitality businesses in the BOP. Wayne brings over 15 years of hospo industry expertise, excelling in buyer management, negotiation, and business value analysis. Gina's an analytical thinker with marketing skills, and deep local connections. Together we're an ideal team. We're here to support the BOP hospo scene, matching sellers with ideal buyers.

💵 P.S Wondering what your hospitality business is worth? Wayne and Gina are available for a free appraisal or a confidential chat

Specialising in the sale of café's, bars, clubs, pubs, restaurants, bakery's takeaways, dairy's, superette's, liquor stores, & accommodation businesses.