What a cost is

Cost and quantity

A quantity on its own is just a count. When that quantity is multiplied by a value, you get a cost. In food service, cost is the valued quantities of raw materials, labor, overheads and taxes used to produce certain amounts.

The elements of cost

• Raw materials: meat, vegetables, dairy, dry goods, spices… the physical part of the food.
• Labor: all staff, from the manager to the receptionist. If the owner works on site, they must earn their position's salary so costs aren't distorted.
• Payroll charges: the contributions the employer pays by law or agreement (13th salary, pension, health insurance, leave…). Amounts withheld from employees aren't a cost.
• Taxes: national (VAT, income tax), provincial (gross income tax) and municipal (fees).
• Overheads: rent, promotion, laundry, insurance, disposables, cleaning, replacing tableware, security…

Costs that aren't raw materials

• Staff: permanent staff (with severance and notice) and extra staff (occasional). Both carry payroll charges and workplace insurance.
• General expenses: small costs that can be estimated at 10% of the other costs (excluding profit and fees).
• Rent: ideally 5% of net revenue, and never more than 10%.
• Utilities: electricity, gas, water, internet, management software.
• Amortization: the investment in equipment and fittings spread over 36 months, since after 3 years their resale value is close to zero.
• Taxes and fees: gross income tax, health & safety levy, VAT, card fees and income tax.