How Participation Can Affect Meal Costs
A Formula to Determine Revenue Per Meal
Everyone can agree that keeping track of costs is key to running a financially sound operation. But costs can vary greatly based on the size of your district, the people you serve, and even where you are located. So it's important to understand such variables to maintain a "profitable" business.
Keeping Track of Your Costs
It's only when you know and understand your overall costs that you can make informed decisions on how to lower your costs per meal. So it's best to be aware of every cost category:
Fixed costs - these remain the same, or relatively constant, during a given period of time, regardless of the number of people you serve.
Variable costs - these vary in direct proportion to your volume of sales, or the number of customers you serve.
In schools, most food service labor costs are fixed costs, with the exception of overtime and substitutes. You have little control over your fixed costs, since they generally are defined by a labor contract, and are fixed until the contract changes. Substitute and overtime costs are variable costs and these costs you do have some control over. But if you increase meal participation, you can spread your fixed costs over more meals and thereby lower your cost-per-meal.
Analyzing Your Per-Meal Costs
When you want to analyze the financial health of your organization, first take a look at your Income Statement, and at your formal budget. Break down your revenue and expenses by meal, so you can get a true picture of what they are costing you.
Here is a useful formula to keep in mind.
It would look like this:
$7319÷17 days÷128 average meals = $3.36 of revenue per meal
A real-life example can help to illustrate this concept. Look at what happens to expenses when participation increases.
Keeping Track of Your Costs
It's only when you know and understand your overall costs that you can make informed decisions on how to lower your costs per meal. So it's best to be aware of every cost category:
Fixed costs - these remain the same, or relatively constant, during a given period of time, regardless of the number of people you serve.
Variable costs - these vary in direct proportion to your volume of sales, or the number of customers you serve.
In schools, most food service labor costs are fixed costs, with the exception of overtime and substitutes. You have little control over your fixed costs, since they generally are defined by a labor contract, and are fixed until the contract changes. Substitute and overtime costs are variable costs and these costs you do have some control over. But if you increase meal participation, you can spread your fixed costs over more meals and thereby lower your cost-per-meal.
Analyzing Your Per-Meal Costs
When you want to analyze the financial health of your organization, first take a look at your Income Statement, and at your formal budget. Break down your revenue and expenses by meal, so you can get a true picture of what they are costing you.
Here is a useful formula to keep in mind.
- Determine total meals served per day. To do this convert you’re a la carte (both student and adult sales) to meal equivalents, and add these meal equivalents your reimbursable meal counts to get total meals served per day.
- Determine your revenue. Make sure to include money from a la carte sales and the predicted government subsidies to determine revenue.
- Divide total revenue by total meals served (including meal equivalents) to determine your revenue per day. If your revenue and meals served numbers are determined monthly, you will need to convert them to daily my dividing the monthly figures by the number of serving days per month.
It would look like this:
$7319÷17 days÷128 average meals = $3.36 of revenue per meal
A real-life example can help to illustrate this concept. Look at what happens to expenses when participation increases.
In this example, participation is the only variable. Since labor costs are applied to a greater number of meals, the labor cost per meal is reduced. However, don't increase labor hours just because participation goes up. If you do, and your goal is to reduce your costs per meal, you will defeat your purpose.
The school in this case relies mainly on convenience foods, and does very little scratch cooking. Its meals per labor-hour figure is 12.8, which is on the low end of the commonly used labor-hour benchmarks.
If this school could increase its participation to 150 meals per day, their per labor-hour total would be 15. If they could increase participation to 175, their meals per labor-hour would be at 17.5 meals, which is very close to the meals per labor-hour benchmark recommendation.
Try running your own numbers using this formula. When you see the results, you too might be inspired to find ways to increase participation and improve your cost per meal figures.
©Kim Hofmann, RDN, LD.
The school in this case relies mainly on convenience foods, and does very little scratch cooking. Its meals per labor-hour figure is 12.8, which is on the low end of the commonly used labor-hour benchmarks.
If this school could increase its participation to 150 meals per day, their per labor-hour total would be 15. If they could increase participation to 175, their meals per labor-hour would be at 17.5 meals, which is very close to the meals per labor-hour benchmark recommendation.
Try running your own numbers using this formula. When you see the results, you too might be inspired to find ways to increase participation and improve your cost per meal figures.
©Kim Hofmann, RDN, LD.
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