2009 January: Cost It Out

2009 January: Cost It OutIn the last month, I’ve presented workshops and seminars to several thousand owner-operators in eight cities. The overriding theme of the seminars is getting back to restaurant business basics. In every single seminar, I’ve asked the attendees to answer the following question: “How much does it cost you to make a 14-inch cheese, pepperoni, mushroom and ham pizza, including the box?”

 

In a typical room of 200 people or so, only two or three will raise their hands and announce the answer. This is scary to me. I realize more than a few are shy and may be embarrassed answering the question in a public group setting. At the same time, though, I lost most of the eye contact in the rooms. Folks were praying that I wouldn’t call on them to answer the question.

Now it is your turn. I’m addressing that identical fundamental question to Pizza Today readers. Write down, right now, how much it costs you to make that pie.

Don’t know the answer? Then you’ve failed the test.

If you are not sure of your exact food cost in percentage, as well as dollars, how can you price your menu? One way is to gather up all of your competitors’ menus and spread them out on your kitchen table and take an average. You don’t want to be the highest or the lowest. But when you do that, you are assuming that the other guys have done the math and have a handle on true costs. I wouldn’t bet the shop on it.

Computing the cost of a pizza is not an easy task, especially when the cost of the raw ingredients is constantly changing. You know you have to do it. Your entire future is on the line. It is time to stop the guessing. Let me describe how it is done.

First, you will need to set aside several blocks of uninterrupted time. I recommend three sessions of two hours. Session one will be devoted to assembling your last two months’ food invoices. You’ll also need to weigh out your topping weights for every pizza, salad, appetizer and any other entree on your menu in ounces (grams). I do this task with a digital electronic portion scale that has a tare (zero reset) function. I first write down my doughball weight, then move on to sauce, cheese and other ingredients as I build the actual pizza on the scale. By using a corrugated pizza circle instead of a dough, I can recycle the toppings after every weight and not waste them. I call this information the Weighout Sheet.

From your invoices, you’ll need to determine price per ounce on each ingredient. If you purchase your cheese by the pound you’ll need to divide the price per pound by 16 to get price per ounce. If you buy your onions by the 50-pound bag you’ll need to compute the edible yield ounces (EYO) per bag. You’ll take into account how many ounces per bag or box of onions or peppers are trim and waste. Do the same on ingredients that are packed in one-gallon jars and number ten cans, like ripe olives and banana peppers. Drain off all of the liquid and weigh the EYO of all of these toppings. This should do it for Session I.

Once you have done the math on the weights and cost per ounce on your pizza as well as salads, sandwiches and other entrees you’ll need to start doing some addition. Welcome to Session II. For pizza boxes, packaging and other things like sheeted dough and disposables, you’ll need to give the ingredient a unit/ each cost. This is right about where I personally dropped the ball.

So far I got the math right, but finding a place to assemble all of the info is a problem. At first, I forced myself to use the huge green accountant’s columnar work sheet paper. Printing tiny and writing all of those numbers in those itty-bitty boxes was almost too much for this ADD pizzaman. After I bought my first computer, I transferred all of the data to a spreadsheet program like Excel. This was a giant leap from pencil and paper until I inevitably entered a value in a wrong cell and crashed the sheet. But since I spent hours and hours doing the algebra for the cells, I usually could find out where I went wrong and fix it. I used this system for many years. I searched the world over for a better way and found none.

After you’ve created and formatted your worksheets you can now start seeing how much it costs to assemble a pizza. You’ll add the sum of the dough, sauce, cheese, pepperoni, mushroom, ham and pizza box. Divide this total into the menu selling price and you’ll finally know the real ideal foodcost for that pie. This will do it for Session II.

Session III is the OMG session. On paper, you should be running, hypothetically, a 30 percent (or less) food cost. In reality, your financials are showing a 37 percent food cost. How can this be? Where is the missing seven percent? That’s a lot of money. It’s quite often the difference between success and failure, real income or living on credit card debt. The key here is replicating each pizza exactly as you did in session one. I’m talking exact portion control by using scales, spoodles or cups to dole out every ingredient, every time. If you are not weighing it, you are winging it. Every ounce counts. Especially in these days of rollercoaster pricing and escalating expenses.

The difference between ideal and actual foodcost is the sum of the following: non-food items on your weekly invoices like hand towels, garbage bags, soap, etc. These purchases should be classified as supplies and not charged to food cost. Most distributors break out non-food items on invoices. I intentionally added in the cost of a pizza box and recommend it if an operation’s gross sales exceed 50 percent in carryout and delivery.

The next area to be concerned about is employee waste. This can be significant. I allowed my managers 1.5 percent here.

The final dark area is theft or under-ringed/reported sales. Every time I visit a pizzeria client and the food cost is way out of whack, I begin scrutinizing these areas right away. You’d be wise to begin doing the same today. Otherwise, you could be leaving thousands of profit dollars behind.

Now, back to the original question. How much does it take you to make that pizza? If you don’t know, get started finding out right now. ?

Big Dave Ostrander owned a highly successful independent pizzeria before becoming a consultant, speaker and internationally sought-after trainer. He is a monthly contributor to Pizza Today and leads seminars on operational topics for the family of Pizza Expo tradeshows.

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