Cost structures. Not exactly the sexiest of topics. But understanding what they mean, especially to you the chef/owner, is important.
Every establishment is different. I don’t mean that this place serves Italian food, this place serves Mexican food, this place serves Thai food, etc., of course those places are different. That is more like what we talk about in marketing. Differentiation.
When I talk about how places are different with different cost structures, I am talking about how you figure out your bottom line. Your profit.
Some places, for example a food cart, are going to have a lot smaller labor nut to worry about. Other places, like an El Gaucho are going to have a much higher labor consideration.
Some places, are going to be lucky to keep their food costs at 30%, while others would be fools to have their food cost percentages be anywhere near 20%.
Other places are going to serve generous pours of their drinks and have drink costs over 30%, while some others are determined to keep their percentage under 20.
I know a guy who had a place where his food cost was 50%–a ridiculous number by anyone’s estimation, but he was making such a killing on his marked-up liquor that he was able to get away with it.
You never know…
If you base your prices on the guy down the street, you could fail. Maybe that guy down the street was given the property from his grandfather, and he doesn’t have to pay any rent. You are just a couple of doors down, and your rent is killing you. Not fair, but that’s what we are talking about when we say every place is different. Cost structures.
Food carts, bars, bakeries, fine dining restaurants, diners, cafes, bistros, etc., are all going to have different cost structures. Even two places, that from the outside seem extremely similar, may have completely different cost structures. You just never know.
The key is to not worry or think about the other guy, but just make sure that things add up on your end. Put prices on that menu that people will pay, but will still add up to profit for you.
If you find that you have to charge a little bit more to make sure you get past break even, find ways to add value so people will pay it.
We all want to make a profit. It’s ok. That’s why you got in to this business in the first place. I am going to talk about this again, soon, but in the meantime, try to understand your cost structure so you can find your profit.