This article is part of a series called “Getting Off-Premises”, which examines how to build an off-premises business.
Catering practice leader Jim Rand breaks down the profit-and-loss statement, also called the P&L statement, which is crucial for understanding how catering sales can help a restaurant’s bottom line.
Jim Rand: I’d love to talk to you about catering today, specifically about how implementing or accelerating your catering revenue channels can materially impact your overall results. I think the best way to do that would be to walk through two simple things. First, a profit and loss (P&L) statement. And secondly, looking at how incremental catering sales can flow through that P&L statement to give you a stronger bottom line. Ultimately, understanding how catering sales impact your bottom line will help you to build a sustainable strategy for long-term growth and a healthy business.
In a basic P&L statement, you have sales at the top, followed by costs that are subtracted, leaving you with your profit at the bottom. In a restaurant there are four main types of costs that either vary with sales or are fixed. Examples of variable costs would be your cost of goods sold, which is your food, packaging, and discounts. Your labor, which is your hourly team members, your management, and their benefits. And operating expenses, which are smallwares, uniforms, utilities, etc. Fixed costs include things like occupancy expenses, which would be your rent, your common-area maintenance charges, insurance, etc.
So an average restaurant in the U.S. does about a million dollars a year in sales and its P&L would look something like this.
You’d see about 32 percent for cost of goods sold, 32 percent for labor, 12 percent for operating expenses, and occupancy at around 12 percent as well, and a profit of 11 percent.
So let’s talk about flow-through profitability. Flow-through is calculated as the percentage of profit that you gain from adding incremental sales. In our example, if you add three incremental catering orders per week, at an average of $275 per order, that would impact our example P&L as follows. Over the course the year, your sales would increase by $42,900 and your profit would increase by $12,442. Therefore, the flow-through would be 29 percent.
And the reason that matters is you’re taking advantage of the fact that you’re not adding incremental management labor, so your actual labor costs go down slightly as a percentage of sales. And your occupancy costs stay fixed. So they also go down as a percentage of sales. Therefore, your overall profit increases by almost seven-tenths of a percent in this particular example.
It’s pretty obvious from that P&L exercise what catering can do for your bottom line in your bank account. But even more importantly, it creates opportunities for your team: More orders, more hours for your employees to work. It offsets a slow sales day and keeps the team and everybody active and involved. It creates a much more efficient operation and can help you utilize your excess capacity. And last but not least, it’s a great way to market your business by getting in front of new customers off-premises. Thanks for joining me today and happy catering.
Want to grow your business? There’s money in catering.