Of all the performance measurements that a small hospitality or manufacturing business can use, Gross Profit %age is the most useful. It is calculated as follows:
Sales less Direct Costs as a percentage of Sales
Direct costs are those expenses which vary with sales. In a bar, for example, it would be beverage purchases. If the bar has a kitchen, then a separate KPI for food would be calculated: Food sales less food purchases as a percentage of food sales.
In pubs and restaurants, GP %age should be between 65% and 75%. Things which affect this important KPI are:
- Selling prices
- Buying prices
- Product mix
If you have the benefit of monthly management accounts, then this measurement can be monitored, and changes made to improve it. An improvement of 5% over a period in a typical pub will generate an extra £30,000 per annum.