Chapter 17
Managing Revenue and
Expense
Main Ideas
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Professional Foodservice Manager
Profit: The Reward for Service
Four Major Foodservice Expense Categories
Percentages
Percentages in Foodservice
Profit Formula
Understanding the Profit and Loss Statement
Common Percentages Used in a P&L
Statement
Understanding the Budget
Professional Foodservice Manager
 Handles functions of product sales to
product delivery.
 Management is more difficult than for
manufacturing or retailing management
counterparts.
Profit: The Reward for Service
 If management focuses on controlling
costs more than on servicing guests,
problems will certainly surface.
 Do not get yourself in the mind-set of
reducing costs to the point where it is
thought that "low" costs are good, and
"high" costs are bad.
Profit: The Reward for Service
Efforts to reduce costs that result in
unsafe conditions for guests or
employees are never wise.
 The question is whether costs are too
high or too low, given management’s
view of the value.
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Profit: The Reward for Service
Revenue - Expenses = Profit
 Revenue is the amount of dollars you take
in.
 Expenses are the costs of the items required
to operate the business.
 Profit is the amount of dollars that remain
after all expenses have been paid.
Profit: The Reward for Service
Revenue – Expenses = Profit
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The following terms will be used interchangeably:
revenue and sales; expenses and costs.
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All foodservice operations, including non-profit
institutions, need revenue in excess of expenses
if they are to thrive.
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Profit is the result of solid planning, sound
management, and careful decision-making.
Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
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Desired profit is defined as
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profit that the owner wants to achieve on
that predicted quantity of revenue
Ideal Expense is defined as
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management's view of the correct or
appropriate amount of expense necessary
to generate a given quantity of revenue
Profit: The Reward for Service
Revenue – Desired Profit = Ideal Expense
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Revenue varies with
number of guests
 amount of money spent by each guest.
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Increase revenue by
increasing the number of guests served
 increasing the amount each guest spends
 or a combination of both
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Four Major Foodservice
Expense Categories
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Food costs
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Costs associated with actually producing menu
items
Largest or second largest expense category
Beverage costs
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Costs related to the sale of alcoholic beverages –
beer, liquor, wine
May also include ingredients, mixers, garnishes
Four Major Foodservice
Expense Categories
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Labor costs
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Cost of all employees, including taxes
Labor costs are second only to food costs in total
dollars spent.
Some include the cost of management in this
category. Others prefer to place the cost of
managers in the Other Expense category.
Other expenses
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Include all expenses that are neither food,
beverage nor labor, such as utilities, rent, linen,
etc.
Percentages
 Numbers can be difficult to interpret due to
inflation. Therefore, the industry often uses
percentage calculations.
 You will be evaluated primarily on your ability to
compute, analyze, and control these percent
figures.
Percentages
 Percent (%) means “out of each hundred.”
 There are three (3) ways to write a percent:
 Common Form
"%" sign is used, as in 10%.
 Fraction Form
the part, or a portion of 100, as in 10/100.
 Decimal Form
the decimal point (.), as in 0.10.
Percentages
 Divide the number that is the part by the
number that is the whole.
Part = Percent
Whole
Percentages in Foodservice
Percentage of revenue that
went to pay for expenses:
Expense
Revenue =
Expense %
Percentages in Foodservice
 As long as expense is smaller than revenue,
some profit will be generated.
Profit
Profit % = Revenue
 Modified profit formula:
Revenue – (Food and Beverage Cost +
Labor Cost + Other Expenses) = Profit
Profit Formula
 Put in another format, the equation looks
as follows:
Revenue (100%)
– Food and Beverage Cost %
– Labor Cost %
– Other Expense %
= Profit %
Understanding
the Profit and Loss Statement
 Profit and loss statement (P&L) lists
revenue, food and beverage cost, labor
cost, other expense, and profit.
 The P&L is important because it indicates
the efficiency and profitability of an
operation.
Understanding
the Profit and Loss Statement
The Uniform System of Accounts is
used to report financial results in most
foodservice units. This system was
created to ensure uniform reporting of
financial results.
 Published by the National Restaurant
Association
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Common Percentages Used
in a P&L Statement
1. Food and Beverage Cost
Revenue
= Food and Beverage Cost %
2. Labor Cost
Revenue
= Labor Cost %
3. Other Expense
Revenue
= Other Expense %
4. Total Expense
Revenue
= Total Expense %
5. Profit
Revenue
= Profit %
Understanding the Budget
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Budget
An estimate of projected revenue,
expense, and profit.
 The budget is known as the plan.
 Both commercial and non-commercial
foodservice operators may use budgets.
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Understanding the Budget
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Performance to budget is the
percentage of the budget actually used.
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The 28-day-period approach to
budgeting
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13 equal periods of 28 days each
Understanding the Budget
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Percentages are used to compare actual
expense with the budgeted amount, using
the formula
Actual
Budget
= % of Budget
Understanding the Budget
"in-line" with the budget vs.
"significant" variation to the budget.
 A significant variation is any variation in
expected costs that management feels
is an area of concern.
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Understanding the Budget
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If significant variations with planned
results occur, management must:
1. Identify the problem
2. Determine the cause
3. Take corrective action
Summary
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Professional Foodservice Manager
Profit: The Reward for Service
Four Major Foodservice Expense Categories
Percentages
Percentages in Foodservice
Profit Formula
Understanding the Profit and Loss Statement
Common Percentages Used in a P&L
Statement
Understanding the Budget