Which of your items actually make you money?

Your accounts tell you whether the shop made money. They rarely tell you which items made it. A coffee shop can have thirty items on the counter, a restaurant a hundred or more, and a shop thousands. Some of them earn nearly all your profit. Some sell every day and earn very little. A few lose money, and you would never know it from the bottom line alone.

The good news is you can find out with a pen, a supplier invoice and about an hour. You need three numbers for each item: what you really earn from the sale, what the item really costs you, and how often you sell it.

Why percent alone can mislead you

A 75% margin sounds wonderful. But if you only sell three of something a week, it barely moves the needle. A 60% margin on something you sell 600 times a month can be the biggest earner on the menu. So look at two things together: the margin per item, and how many you sell. Multiply them and you have the profit that item adds.

The three steps

1. Take the VAT out of your price. If the item carries VAT, that part was never yours to keep. At the standard rate, divide the price on your menu by 1.2.

2. Add up what one item costs. Ingredients, packaging, and an allowance for waste. Work from your latest supplier invoice, not memory, because prices move.

3. Multiply by how many you sell. That gives you the item’s real contribution to profit, not just its margin on paper.

A real example

At one coffee shop I ran, before qualifying as an accountant, we found that labour fell from 22% to 20% of sales and food cost from 30% to 29.5%, once we looked closely at who was working when and why. Four people had been opening the shop every day and spending the time on set-up, when health and safety only needed two. That is the same thinking applied to staffing instead of stock: look at what each hour, and each item, is actually earning you.

What to do with your results

Do not change everything at once. Pick two or three items, make one change each, and look again next month. A popular item with a thin margin is usually worth more attention than a high-margin item nobody buys.