$$$..UNDERSTANDING THE SALES MIX.. $$$

Food service operators normally consider that the food cost % is the most importan indicator weather the operation is profitable or not. However, this form of evaluation is not really the best guide when you go to evaluate your food sales. The key element is the sales mix. Below will be presented an example of what I mean.

Thanks to "Educational Institute Books' HOSPITALITY INDUSTRY MANAGERIAL ACCOUNTING" for the table information presented below. I recommend all of their fine, easily understandable books relating to the hospitality industry.

**SALES MIX OPTIONS**
	#1	#2	#3
CHICKEN	500	300	200
FISH	200	300	300
STEAK	300	400	500
TOTAL	1000	1000	1000

**PROFIT BASED ON SALES MIX HISTORY**
OPTIONS	SELLING PRICE	MEAL COST	%	#SOLD	REVENUE	FOOD COST	GROSS PROFIT
MIX #1 Chicken Fish Steak TOTAL	$4.98 $6.85 $9.95	$1.65 $2.75 $4.45	33.33% 39.57% 44.72%	500 200 300 1,000	$2,475 $1,390 $2,985 $6,850	$825 $550 $1,335 $2,710	$1,650 $840 $1,650 $4,14O
*FINAL FOOD COST = $2,710 divided by $6,850 ((2710 / 6850)100) = 39.56%**
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
MIX #2 Chicken Fish Steak TOTAL	$4.98 $6.85 $9.95	$1.65 $2.75 $4.45	33.33% 39.57% 44.72%	300 300 400 1,000	$1,485 $2,085 $3,980 $7,550	$495 $825 $1,780 $3,100	$990 $1,260 $2,200 $4,450
*FINAL FOOD COST = $3,100 divided by $7,550 ((3100 / 7550)100) = 41.06%**
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
MIX #3 Chicken Fish Steak TOTAL	$4.98 $6.85 $9.95	$1.65 $2.75 $4.45	33.33% 39.57% 44.72%	200 300 500 1,000	$990 $2,085 $4,975 $8,050	$330 $825 $2,225 $3,380	$660 $1,260 $2,750 $4,670
*FINAL FOOD COST = $3,380 divided by $8,050 ((3380 / 8050)100) = 41.99%**

SALES MIX PROFIT COMPARISON
MIX # MEALS
SOLD TOTAL
REVENUE TOTAL
COST GROSS
PROFIT FOOD
COST % GROSS
MARGIN

1
2
3
1,000
1,000
1,000
$6,850
$7,550
$8,050
$2,170
$3,100
$3,380
$4,140
$4,450
$4,670
39.56%
41.06%
41.99%
$4.14
$4.45
$4.67

**SALES MIX PROFIT COMPARISON**
MIX #	MEALS SOLD	TOTAL REVENUE	TOTAL COST	GROSS PROFIT	FOOD COST %	GROSS MARGIN
1 2 3	1,000 1,000 1,000	$6,850 $7,550 $8,050	$2,170 $3,100 $3,380	$4,140 $4,450 $4,670	39.56% 41.06% 41.99%	$4.14 $4.45 $4.67

WHAT IT ALL MEANS

Notice that the same numbers of meals are served in each mix, just the mix itself is different.

Also note that the mix with the lowest % also results in the lowest gross profit. It is the mix with the highest %, Mix #3, which produced the highest gross profit, $530 dollars more than Mix#1, which is really what is put in the bank, not percentages.

The same is reflected in the Gross Margin, which reflects the profit per meal sold.

CONCLUSION
Do not be fooled by low percentages only. Gross profit is the measure of profitability.

FOOD COSTING FORUM

Have Questions? Post them in the forum.

BREAKEVEN