RATIO - MARGIN RATE AND BRAND RATE
In the restaurant business, it is sometimes difficult to control costs and set prices. Indeed, restaurant owners need to ensure that their business is financially sound. It is therefore essential to make calculations and use ratios or performance indicators to help manage the restaurant. In the restaurant sector, these ratios are mainly based on the margin rate or gross margin. However, other data must be taken into account, such as the brand rate, which helps to determine the profitability of the business.
In this article we will explain how to use these ratios and especially how to analyse the brand rate of your restaurant. The gross margin is necessary to calculate the brand rate, so you must first know how to obtain this data.
Ratio: The gross margin
For a restaurant business, the first ratio and performance indicator to study is the gross margin. The gross margin rate is used to determine the selling price of your company's products. This margin ratio is calculated according to the cost of purchasing materials. It is therefore necessary to improve this ratio as much as possible by reducing the cost of raw materials.
The calculation of this margin rate is simple. It is the turnover minus the cost of raw materials:
Gross margin = Turnover - Cost of raw materials
There are two types of calculation then, the theoretical gross margin and the actual gross margin. For more information on this point we invite you to read this article on gross margin.
Ratio: The mark rate
Once the gross margin is obtained, the brand rate can be deduced. This is also a management indicator that helps to monitor the company's activities. The objective of this data is to study profitability. Like the gross margin, it is therefore necessary to improve this rate as much as possible to increase profitability.
The brand rate takes into account the selling price in its calculation, unlike the gross margin which uses the purchase price. Moreover, the gross margin is used to calculate the brand rate because:
Brand rate = ( Gross margin / Sales price ) x 100
You now know the percentage of the sales margin in the selling price of your products, which allows you to analyse the profitability but also to set a selling price. In fact, if we modify the calculation a little and look for the selling price, we obtain the following formula:
Selling price = Purchase price / (1 - Brand rate)
Ratios and performance indicators provide you with concrete data on your business, on cost control and on the profitability of your products. They help in the management of your business but this process and these calculations can be time consuming and recurrent.
Management software like Koust allows you to simplify the calculations. For example, our tool can calculate the gross margin on your ingredients, recipes and menus for you. The software directly takes into account the purchase of raw materials and the quantity sold, i.e. the turnover achieved, to give the margin. Our solution is a time saver for restaurant owners because it simplifies management, price/quantity control and therefore ensures the financial health of the establishment.