Figuring The True Cost And Selling Price is generally obtained through Retail Meat Formulas
An Old Meat Profit Adage…
More SHARP Pencil—Less SHARP Cleaver
All the meat cutting skill in the world will not assure a profitable operation unless the accurate TRUE cost is computed and proper pricing procedures are in place.
For the retail meat operator it will mean allocating the necessary time and having the necessary tools
(Spreadsheets)to project and track movement of product to assure accurate numbers and consistent profits.
What Is Profit?
Profit in business is the final sum derived from sales or service after all expenses have been deducted.
If there is
are no quality, accurate numbers available showing the operating cost
or other necessary business facts, then the retailer operates
practically in the dark. He is merely guessing.
Profits
must be made on sales. Therefore, it is of the utmost importance to know
how to establish a correct selling price which will cover the
retailer’s operating cost and a reasonable profit.
Data Required When Figuring Profits
To arrive
at the correct retail price the true cost of product and all relevant
expenses is a must, records of all business transactions, cost of goods,
sales and operating expense must be recorded
Too many
operators establish selling prices according to a rule-of-thumb method,
or according to the prices they see at competitors
While
many retailers claim they operate on a 25% margin in reality they add
25% to what the product has cost him, believing that they are making
25% gross profit.
Profit Figured on Sales.
At retail gross profit is computed on
SALES, The retailer adding 25% to his cost price only realizes 20% gross profit on the
SELLING price.
Assuming that an article has cost $1.00, and that 25% is added, it brings the selling price up to $1.25, this produces a GROSS PROFIT of 20%, not 25%
Another
example, at a cost of $1.00, if 50 cents is added, too many retailers
believe they are making a margin of 50%. However, 50 cents added to
$1.00 is only 33% of $1.50, the sales price.
The
retailer who buys $80000.00 worth of meat weekly and adds 25% to the
$8000.00 receives $100,000 in return, the $20000.00 margin only
constitutes 20% of $100,000,sales price.
If the
retailer wanted to realize a 25% margin on the sales price, 33% should
be added to the $80000 or the total sales price of the meat should be
$100640.00. There is a difference of $6400.00 by figuring the percentage
on the sales price as compared to figuring it on the cost price. This
additional $640.00 is the difference between a profit and a loss.
Margin is based on sales because:
Neither margin nor profit is made until after the sale is made.
Expenses in the operation are based on their relation to sales.
Selling expenses are always figured in relation to sales.
Taxes are based on sales.
Because sales totals are usually available at a glance.
Profit is earned to reward all your capital and not only that part invested in merchandise.
Because it indicates correctly the margin or profit when the selling price is stated.
Allowances and discounts are always made on sales.
Mark-down is always figured on selling prices.
Establishing A True Cost
To establish a correct selling price requires the knowledge of three facts:
1. A correct cost.
2. Knowledge of operating expenses.
3. Knowledge of percentage of profit needed.
If an item is bought (for $2.35) and is sold in the same form and weight/number, the process is simple, decide the GROSS PROFIT required (30%), divided the cost ($2.35) by (.100-.30) the result is;
$2.35 ÷ .70 = $3.36 (selling price rounded off)
The meat department, however, is essentially a processing plant where product received is dramatically changed before sale.
These changes occur during the cutting process and proper cutting tests (spreadsheet) is necessary to determine TRUE COST and ACCURATE SELLING PRICE in order to make the necessary profit.
These
cutting tests need to be made on a regular basis, animals do not come
out of a mold, especially if specifications are changed, size and yield
grade have a great effect on the amount of saleable meat available from a
given carcass.
Original or Prime vs. Actual Cost
On the majority of meat products sold over the retail meat counter, there are in reality two costs, one the original or PRIME cost and the other, the ACTUAL cost.
Bob, a jobber, buys
a 100-pound hindquarter of beef at $1.50 cents per lb. Total cost is
$150.00. He knows that he must add 30% to his cost to make a fair
profit. Therefore Bob sells the whole hind-quarter for $150.00 plus 30%, or $195.00.
The transaction of Bob’s was simple.
John, a typical retailer,
buys a hindquarter of beef weighing 100 lbs. at $1.50 per lb. He also
paid $150.00 for it. The $150.00 represents the original cost for the
whole hind-quarter.
He bought it on Friday for processing on Monday.
At cutting time he original 100-lb. hindquarter weighed only 98 lbs., because there is always a shrinkage on beef carcass, which contain such a large percentage of moisture.
John
now starts processing, separating the ROUND from the LOIN, further
cutting into steaks and roasts incur fat and bone loss plus cutting
loss, just as cutting wood leaves sawdust, cutting meat leaves bone
dust.
When John weighs all the cuts available for sale from the hindquarter he finds that he has about 84 lbs. of meat
The TRUE COST is now $1.78 lb, not $1.50.
While the original cost for the total does not change, the actual cost per pound has changed considerably.
Use of
spreadsheetscan easily and quickly determine the “actual cost”
Figuring Price “Per Lb.”
In figuring “cost price per lb.” there are many items to take into consideration:
1. Shrinkage***
2. Cutting loss
3. Fat & Bone loss
***NOTE***
The use of
carcass beef is very limited today, most meat departments use boxed beef
in sub primal cuts, these are usually in Cryovac™ bags, and, if ordered
correctly and opened at cutting time, shrinkage should negligible vis a
vis carcass.
The cutting, fat and bone losses still apply.
These
constitute the major losses to the retailer. Shrinkage on meat carcasses
varies and depends greatly upon the freshness of the product.
Veal, lamb and mutton carcasses all suffer these losses to varying degrees.
Historical
testing show a conservative figure at least 1% for evaporation,
shrinkage and cutting losses which the retailer otherwise will never
recover.
All meat products NOT in Cryovac™ bags or other wise protected from the air suffer loss of weight in shrink.
With the high cost of product today it is ESSENTIAL to have for tracking tonnage, ad loss, cutting tests, inventory, receivings, inventories and prices with
spreadsheets
Example of computing store gross profit and payrollDept % Store x Gross Profit% ÷ 100= Result Payroll% x % Store = Payroll
Compute example Grocery (47 x 20) ÷ 100 = 9.40 |
This formula is used for determining the contribution to margin by department:
Dept Gross Profit x Dept Percent of Total Store Sales = Margin Contribution to Store Gross Profit
To determine the total store realized gross profit, add up the contributions to Gross Profit.
Example
Dept. Gross Profit x % of Store Sales = Contribution to Store Gross Profit
Groc 0.29 0.40 11.40
Meat 0.30 0.23 6.90
Produce 0.32 0.20 6.40
Deli 0.35 0.07 2.45
BWL 0.25 0.10 2.50
100.00% Store Gross Profit 29.65%
Basic Formulas
Markup = Profit / Cost.
To compute markup, divide the profit by the cost. You buy a box of dog
treats from your distributor for $5 and sell it for $9. To figure the
markup, divide the profit of $4 ($9 retail price minus $5 cost) by the
$5 cost. That gives you an 80% markup.
Margin = Profit / Retail Price
To figure margin, divide the profit by the retail price. From the above
example, the $4 profit divided by the $9 price equals a margin of 44%.
Comparing Markup and Margin | |
Markup | Margin |
33% | 25% |
43% | 30% |
50% | 33% |
60% | 37% |
67% | 40% |
100% | 50% |
150% | 60% |
300% | 75% |
Handy Supermarket Math Formulas
Rounded off to 2 decimal points
MARK UP
Find RETAIL when you know
COST and MARKUP%
Cost 1.05
Markup 30%
Retail 1.50
1.05 ÷ (1.00-.30) =1.50
Cost ÷ (1.00-Markup) = Retail
Find COST when you know RETAIL PRICE and MARKUP%
Markup 35%
Retail 1.99
Cost 1.29
1.99 x (1.00-.35) =1.29
Retail x (1.00-Markup) = Cost
Find the MARKUP% when you know
COST and SELLING PRICE
Cost 2.53
Retail 3.79
Markup 33%
(3.79 – 2.53) ÷ 3.79=33%
(Retail – Cost) ÷ Retail = Markup
MARK DOWN
Find SALE PRICE when you know
ORIGINAL PRICE and MARKDOWN%
Original Price= 27.99
Markdown%= 12.5%
27.99 x (1.00-.125)
27.99 x .875
SALE PRICE= 24.49
Original Price x (1.00-Markdown%)
Find ORIGINAL PRICE when you know
SALE PRICE and MARKDOWN%
Sale Price= 105.12
Markdown%= 68.6%
105.12 ÷ (1.00-.68.6)
105.12 ÷ 0.314
ORIGINAL PRICE= 334.77
Sale Price ÷ (1.00-Markdown%)
Find MARKDOWN% when you know
ORIGINAL PRICE and SALES PRICE
Original Price= 57.98
Sales Price= 25.30
(57.98-25.30) ÷ (57.98 ÷ 100)
32.68 ÷ .5798
MARKDOWN%= 56.4%
Inventory Turns
Turnover
Turnover = Cost of Goods Sold / Average Inventory in a Year.
For example your Cost of Goods Sold is $90000. Your Starting Inventory is $33000 and your Ending Inventory is $29000.
That makes your turnover 2.9%.
$90000 / $31000 (average inventory.)
Retail Ratios and Statistics
Current Assets to Current Liabilities Ratio
Current Assets ÷ Current Liabilities
Inventory to Average Weekly sales Ratio
Ending Inventory (Wholesale) ÷ Year to date Average Weekly Sales
Inventory Per Square Foot Of Selling Area
Ending Inventory (Wholesale) ÷ Selling Area Square Feet
Inventory Per Square Foot Of Building Area
Ending Inventory (Wholesale) ÷ Building Area Square Feet
Return On Total Assets
Average Weekly Year To Date Net Profit x 52 ÷ Total Assets
Sales Per Transaction
Total Sales ÷ Total Transactions
Sales Per Man Hour (Store/Dept)
Store/Dept Sales ÷ Total Hours Worked
DEPARTMENTAL
Gross Profit Per Man Hour
Dept Gross Profit ÷ Total Hours Worked
Average Rate Per Man Hour
Pay For Hours Worked ÷ Total Hours Worked
Gross Profit Per Man Hour After Labor
Gross Profit – Payroll ÷ Total Hours Worked
TONNAGE (Lbs/KG (Dept)
Tonnage Per Man Hour
Total Tonnage ÷ Total Man Hours
Retail Value Per Lb/Kg
Department Sales ÷ Total Lbs/Kgs
Gross Profit Per Lb/Kg
Dept Gross Profit ÷ Total lbs/Kgs
Payroll Cost Per Lb/Kg
Total Dept Payroll ÷ Total Lbs/Kgs
With the high cost of product today it is ESSENTIAL to have
spreadsheets for tracking tonnage, ad loss, cutting tests, inventory, receivings, inventories and prices.
I use Microsoft Office Professional 2010, it is ample for your needs, no need to spend more on latest version!!
Microsoft Office Professional 2010
You can sign up for Google Docs and save the expense of buy Microsoft Excel.
Here is a basic video tutorial on using a spreadsheet in Google Docs.
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