From our restaurant example, we analyzed the cost of production, raw materials and the respective gross margin, relative to one of the products sold on the lunch menu. We will now consider other products and services in the catering business plan to analyze and discuss the impact of this strategy. Let's see what the CMVMC – Cost of Goods Sold and Materials Consumed is and how to calculate the profit margin.

## Table of Contents

- What is CMVMC and Profit Margin
- daily sales plan
- What raw materials do we need for our menu?
- VAT always has an impact and cannot be neglected
- Calculate the average prices and costs of these catering products
- Calculate profit and profit margin for restaurant products
- Annual raw material costs, CMVMC and calculate the profit margin of the business.

## What is CMVMC and Profit Margin

We can consider, for simplicity, that the CMVC is equal to what we determined earlier as the production cost.

In order to sell the products or services of the activity we intend to start, it is important to know the costs borne by the company in the goods and materials used for these sales.

In other words, to calculate the expenses we incur to manufacture or produce the dishes, desserts and other products and services that we sell in the restaurant.

Thus, CMVMC is the most important cost for most companies.

The profit margin is commonly used as the **Gross Margin or Net Margin**. Therefore, the profit margin must refer to whether the profit is gross or net.

Gross margin is the difference between revenues and production costs of goods sold and materials consumed.

The calculation of the gross margin makes it possible to evaluate the costs of products sold and, based on the result, to assess whether the prices are adequate or whether the goods and services that we intend to sell should be maintained.

In industrial companies, the concept of gross margin is considered to be the difference between the value of sales and the variable part of production costs, that is, costs that are directly linked to the volume of sales.

## daily sales plan

With the menu of products that we planned for our business, we arrived at the sales plan following diary:

Based on this plan, we detailed the calculations to determine the cost of raw materials, that is, the ingredients needed to prepare the meals served at lunch, also called CMVMC – Cost of Goods Sold and Materials Consumed.

Our Chef's experience was decisive, as he not only gave us the references of the genres that each dish includes, but also helped to define the best way to have an excellent quality product at a reasonable cost.

He knows how to design both a home-cooked restaurant menu and one with good, quick-to-make food.

## What raw materials do we need for our menu?

We move on to the next stage, which will be to determine the costs of the remaining ingredients needed to prepare, among others, the **Desktop**, **drinks**, **confectionery** e **special dinners**.

Let's take an example by calculating the costs of a dessert and a drink.

From table 1 the plan is to sell 15 desserts a day to a **average price** €1,63, excluding VAT.

In drinks, the plan is to sell 30 drinks a day to a **average price** €2,44, excluding VAT.

We chose “Apple Cramble” as an example to calculate the CMVMC of our dessert.

If we sell this dessert for €3,75 (VAT included) a piece, the price without VAT (apr. 23%) is €3,049. Thus, the unit cost (per person) is €0,623 (with VAT) and €0,507 (without VAT). We will therefore have a profit margin of 83% (1 – €0,507/€3,049).

The sale value of this dessert is much higher than the average price that was considered in the plan, which is €1,63 versus €3,049 for the apple cramble (prices without VAT).

We have always done the calculations without VAT but, for simplicity, we will consider these raw material costs with VAT. Thus, in this case, the unit cost becomes € 0,623 and the margin drops slightly to 79,6% (1 - € 0,623 / € 3,049).

In summary, in the calculations of these costs and the profit margin, we considered that the price does not include VAT and the Cost of Goods Sold and Consumed Material, CMVMC, although with VAT, we considered them as being equal to the cost without VAT. Don't forget this simplification we made.

We can simulate that this recipe, instead of being for 4 people, can be for more or less people. We can calculate the costs of other desserts on our menu, some more economical, others less.

Finally, we can extract from this analysis the average sales value of the desserts, as well as the cost of raw materials needed for the preparation and the average gross margin.

Let us now take as an example of a drink, the traditional sangria.

If we want to have a greater impact on our clientele, we will call it “Sangria Algarvia” because the wine will come from these paradise lands and the Algarve oranges are the best in the world, as the “Algarvian” told us.young entrepreneur” Algarve!

If we offer this amount, for 6 people, we can sell for €14 with VAT, that is, €11,38 without VAT (23%) and we will have a profit margin of 54% (1 – €5,18/€11,38 ). The cost per person is €0,863 (excluding VAT) and the price per person is €1,9 (VAT excluded).

If we want to sell 0,75 l, the equivalent of 1 bottle of wine (the house jug) we will have to make the proportional price and the ingredients will also have to be.

If we want to offer customers different sizes of “jug”, then we can make a price for the smaller jug that is proportionately higher, given that the work involved in making both is equal. From the customer's point of view, the higher the quantity, the lower the unit price, which is what we are doing.

## VAT always has an impact and cannot be neglected

We make a simplification here, admitting that VAT is 23% when each of the raw materials of Sangria and Cramble have different VAT.

We can calculate more accurately or continue with this assumption, as we did with meals.

At this point in the construction of the plan, we think that this approximation is sufficient and what we should take into account is to always place the values a little more unfavorable to the project, that is, to have a slack in the costs.

## Calculate the average prices and costs of these catering products

At the end of the calculations for the various desserts, we will assume, as an example, that we reached the average price of €1,63 (table 1).

Let us also assume, for the purposes of this exercise, that after the calculations made for beverages and coffees, the average selling price we arrived at is €2,44 (table 1).

## Calculate profit and profit margin for restaurant products

We need to know the costs of raw materials, ie the CMVMC of each of these products.

Assuming that we have made a set of calculations sufficient to have some degree of certainty about the costs, we arrive at the situation that allows us to conclude, in this example, drinks and coffees have the highest margin (on average a profit margin of 95%) and that the smallest margin comes from group dinners (with 65%).

We discussed these margins and, although the discussion of the lower margin caused some discomfort, we decided to continue with the calculations and decide later on whether or not to include this service.

Our consultant was decisive here as he argued that it was too early to decide, without having a more global view.

If the profit margin is 95% then the direct cost will be 5% of the selling price (excluding VAT).

Applying the same reasoning to the other products on the menu, we arrive at this picture:

We can now add to the daily sales plan (table 4), the number of days per year, that we will work on, to find the annual sales plan.

## Annual raw material costs, CMVMC and calculate the profit margin of the business.

With this sales plan, we arrive at the raw material cost plan, CMVMC, which are variable costs that depend on the production volume.

**The Annual Gross Profit will then be €143.492 – €30.224 = €113.268**

**To calculate the Gross Profit Margin = €113.268 / €143.492**

Will it be a good gross margin for the restaurant business?

For business plan we need to know the other structure costs, the Supplies and external services, as well as the Labor costs, to get closer to a final result.

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