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Do You Know Your Break Even Point?
By: Joe Dunbar
In my MBA program at Rutgers University, they made sure every graduate
could calculate break even points. We were given a myriad of scenarios
with a variety of variables. Our tests included irrelevant information
to make sure we could focus on the essential formula. Break even point
analysis was taught in microeconomics, cost accounting, advanced cost
accounting, finance and analytical techniques courses.
The basic formula for determining your break even point follows:
BE=FC/(1-VC%)
BE Break Even Point
FC Fixed Costs
VC Variable Costs
If
your business had fixed costs of $500,000 and a 75% variable cost rate,
your break even point is $2,000,000. If your fixed costs are $800,000
and your variable costs are only 60%, you'd have the same $2,000,000
break even point.
Which operation would you prefer to own in a growth market? How about a recession?
When
a business experiences solid growth, it's possible to increase fixed
costs and prosper. The operation with the low variable cost % would be
the growth choice. However, you'd want the low fixed cost scenario
during recessions.
Think of higher fixed costs as unit
expansion. You invest in new FF&E, leasehold improvements, etc. and
you expect a big increase in sales and profits. Restaurant expansion
may slow this year. We may see units closing and corporate management
positions decline in number. Companies are working hard to lower their
fixed costs.
When you read about comparable unit sales in the
financial press, get your calculators out. If our unit with the
$500,000 fixed costs above experienced a 10% drop in sales, fixed costs
would need to drop $50,000 to maintain the same break even point. With
higher commodity costs, food manufacturers and suppliers are raising
prices. Market prices have shot up in major grains and dairy markets.
Delivery costs are up due to higher energy prices.
The
government may eliminate food and energy from the core inflation rate
but we can't ignore these increases. If your sales are in decline and
your variable costs are increasing, it's probable last year's profit
may not be possible. If you use the previous year's results in your
budget calculations, management meetings will be more contentious this
year.
The smart operators will look for unique menu solutions
which reflect value to customers and help lower variable costs. Buying
new equipment is a risky gamble in this climate. It's best to constrain
your menu team with the existing equipment. Look carefully and evaluate
the work needed to prepare and finish any new menu items. Labor cost is
a key component of variable costs.
What items can you add to a
dinner menu? A popular pasta dish is a good choice for these profitable
meals. The sauce may be reused for several days without additional
labor. The pasta is cooked to order...
Read More
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Joe Dunbar
President, Dunbar Associates
jdunbar401@aol.com
800-949-3295
www.joedunbar.com
foodcostcontrol.blogspot.com
| About Joe Dunbar
The author of the Food Cost Control Blog has worked in the industry for 25 years. His articles are published online at Foodservice.com, Hotel Trends, Hotel F&B Observer, RestaurantChains.Net, 4Hoteliers, Alabama Restaurant Association, Hotelarz, Culinary Institute of Australia, and university news sites. You can read his articles in print in Today's Restaurant News and Midwest Food Network.
The Harrah Hotel School of the University of Nevada Las Vegas has created an innovative Distance Learning program using the webinar format. Joe has been invited to participate in this educational venture.
As president of Dunbar Associates, Joe Dunbar designs and implements portion control systems for hotels, resorts, restaurants, caterers and onsite feeders. He specializes in complex operations with mixed revenue streams. Projects involve central purchasing and production, transfer control systems, competitive bidding, usage variance control, strategic planning and operations research.
As Chief Financial Officer of Sodexho Canada, Joe organized all reporting for the $75,000,000 contract feeding organization. He formed an M.I.S. team and implemented a complete automation of the HQ accounting function. Prior to promotion to CFO, Joe worked on the corporate acquisition team, and contract bid team. His experience includes operations audits and purchase rebate administration.
He resides in Fairfax, VA with his wife Jackie and daughter Caroline. He is active in the Alumni Association of Rutgers University Graduate School of Management, Hospitality Financial and Technology Professionals, National Restaurant Association, and the Restaurant Association of Metropolitan Washington DC. | |
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"Ninety-nine percent of failures come from people who have the habit of making excuses."
- George Washington Carver
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View updated pricing and information each week on the website for the following food-commodity markets:
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Beef, Veal & Lamb |
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The March 1st US cattle in feedlot inventory was 2.2% more than last year. Cattle placements into feedlots during February were 3.9% greater than 2007 which is bullish for cattle supplies this spring. Still, for the 3rd month in a row cattle placement gains were at lighter weights which will likely lead to a decline in slaughter weights in the coming months which is bearish for overall beef output. Most of the beef markets remain soft but some upward pressure on the markets is expected during the next few weeks. Prices per pound FOB from USDA.
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Dairy |
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Milk farmer margins have deteriorated this winter. In turn, February milk cow slaughter, after the leap day adjustment, was 2.3% more than last year. Milk cow slaughter is anticipated to accelerate this spring. During February, a net 24 million pounds were added to the American cheese inventory which is the most for the month since 2002. The CME cheese markets are fairly steady. February butter stocks grew by 13 million pounds marking the second smallest gain for the month in 10 years. Prices per pound, except Class I Cream (hundred weight), from USDA.
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Poultry |
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The March 1st broiler type breeding inventory was .8% bigger than last year. In addition, pullet (young hen) placement data suggests that the broiler type hatchery should continue to grow compared to year ago levels. These factors indicate that strong chicken output growth could persist. However unless chicken prices improve soon, chicken suppliers may reduce overall chicken output in an effort to pressure prices upward to counteract rising feed costs. The jumbo cut chicken wing market is trading at its lowest level in 15 months and additional price decreases are anticipated. Prices USDA, FOB per pound except eggs (dozen).
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Seafood |
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The shrimp markets are relatively steady. Overall shrimp supplies are adequate however the challenged US economy could dampen shrimp demand in the coming months which would be bearish for shrimp prices. Still, the deflated value of the US dollar is anticipated to continue to mitigate US shrimp imports throughout this year which is likely to lessen the available supply. The salmon filet market is relatively firm. Prices for fresh product, unless noted per pound from Fisheries Market News.
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Pork |
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Hog farmer margins have waned this winter. Some liquidation of the swine breeding herd is likely underway as farmers attempt to decrease the available hog supply and pressure prices upward to compensate for the rise in feed costs. February sow slaughter, after the leap day adjustment, was 5% more than a year ago. Most pork markets typically move upward in April but any increases this year should be tempered. February 29th pork stocks were 21% more than 2007. Prices per pound FOB from USDA.
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Produce |
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Tomato shipments from Florida last week rose 4% but were still 6% less than a year ago. The mature green tomato markets remain fairly inflated but additional price relief is anticipated in the coming weeks. The major lettuce growing area is beginning to shift north in California to the San Joaquin Valley. However acreage declines amongst other challenges could limit overall lettuce supplies during the next few weeks. Modest upward pressure on the lettuce markets may occur. Later in April, the principal lettuce growing region will transition to the Salinas area for the summer. Prices shipping point unless noted (terminal) FOB from USDA
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Oil and Grains |
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On Monday March 31st, the USDA will publish their first farmer surveyed planting intentions report for the upcoming corn and soybean crops. The grain markets are erratic. Prices per pound (oils) or bushel (grains) FOB from USDA.
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Canned and Frozen Food |
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Tomato Products, Canned - There are mixed inventory reports on whole peeled tomatoes. Overall canned tomato stocks will tighten as the spring progresses and the new crop nears (July). Modest market increases may be impending. Price per case (6/10) FOB from Supply and Market Report.
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Processed Fruits and Vegetables - Most canned vegetable product supplies for food service are fairly limited and processors are beginning to announce forthcoming price increases. Higher canned vegetable markets are expected this spring. Prices FOB per case from Supply and Market Report.
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Where do they come from?
Where do they come from? I mean some of these employees. Especially the teenagers.
I don't know how many I have had to show the difference between a cucumber and a zucchini. Don't parents buy fresh vegetables anymore? How to peel a hard boiled egg. Have they only had Count Chocula for breakfast? Why are button mushrooms so exotic?
As further illustration of what I'm saying....I hired a brand spanking new teenager to be our "Salad Bar Maintenance Technician". In other words, make sure the salad bar is kept full, clean and orderly. One of my veteran servers noticed that the teen had emptied a container of French dressing and as is the case when you don't use a rubber spat to scrape down the sides of the container about a half inch of dressing collected at the bottom when it was returned to the upright position.
The server pointed this out to our new technician and informed the tech that we needed her to use a spatula to scrape out the rest of the dressing. As the server returned to the scene a short time later she observed the tech dutifully scraping the remaining dressing container contents into the garbage.
Now where is the preferred placement of the gun to my head? To the temple or behind the ear?
Read More
Most Popular/ Profitable Items
We are in the middle of designing our menu. What are some of your most popular but at the same time profitable menu items?
Read More
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Our Race has 3 Popular Colors
I am native to the Eastern Mediterranean region and have been cultivated since at least 3,000 BC Today, about 98% of my crop still comes from this area. I am about 18% oil by weight. The Spaniards brought me to the New World. I am virtually inedible without being processed. My oleuropein (used as a weed killer or insecticide) has to be removed for me to be palatable. To do this they soak me, smash me, treat me with lye and then I am brined and pickled. I am marinated whole, used in breads, condiments, sauces, but I am most popular as a cooking oil. Our race has three popular colors, green, black, and violet. We are round or oblong. We have a very high fat content ranging from 12% to 30%, but I am told it is the good kind, so we are pleased that you like us after all that soaking, smashing and mashing. My oil is also used in lamps and cosmetics. Internally it is believed that we have laxative properties, stimulate appetite, and aid the liver. Externally we have been known to prevent hair loss and boils. Our leaves are considered an astringent, aiding in the reduction of high blood pressure and high blood sugar.
What am I?
The Food Quiz has is brought to you by Culinary Specialty Produce, a specialty produce broker that scours the world for the very best in specialty produce. Contact them at 908-789-4700 or by sending an email to info@culinaryproduce.com.
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