Marginal Profit %

Marginal Profit %

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Hi

I have a client who runs 3 restaurants, he's an American but the businesses are in the UK.  I have been asked to work out the marginal profit % on any additional turnover, ie. in his words "as we do more turnover our rent and utilities don't increase, but there are some additional variable costs of course, so how much you would estimate roughly that we make in net profit from each additional pound  of revenue)?  Please, does anyone have the formula for working this out, anything that I find is related to manufacturing not the pub/restaurant industry.

Thanks

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By turtleburgers
02nd Jul 2013 11:53

The principle

Surely the same principles apply?

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By johngroganjga
02nd Jul 2013 11:53

Surely it's just the gross profit margin in the accounts, provided that no fixed, or semi-fixed costs are included in cost of sales.  If they are (and kitchen wages might be) just strip them out and re-work the percentage.

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Glenn Martin
By Glenn Martin
02nd Jul 2013 12:46

In Percentage Terms

You need to achieve a gross margin of between 65-70% to succeed in restaurant, ie revenue 100 cost 30 GP 70

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By Richard Willis
02nd Jul 2013 13:03

It depends on

Where he is going and where he is coming from.  If he literally wants to know his marginal profit then it will approximate to the gross profit of income less food costs.  However if he is looking to expand any or all of his restaurants additional marginal costs will start to creep in.  For instance he would eventually have to hire more staff to cook and serve the food, he may have to buy more fixed assets, kitchen plant, tables & chairs, etc.  Without knowing the detail of his plans it is difficult to advise.  BTW, I originally trained in catering college for three years, long before I became an accountant!  And no, it wasn't a sandwich course and yes, I did learn to cook the books! Oh, and that is where I learned that the debits go on the side next to the window!

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By David Treitel
25th Jul 2013 08:45

Don't forget that as he is American he needs to file annual US income tax returns so the marginal return he earns will need to be net of any US tax payable.

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