The real profit margin of a plate of eggs and bacon at a Spanish bar
Find out the real margin of a plate of eggs and bacon at a bar: hidden costs, fixed expenses, and why drinks are the real business.
English · Original discussion in Spanish · Published
Eggs and bacon: the real margin that doesn't show up on the bill
If something seems cheap to prepare, the margin must be huge. A plate of eggs and bacon has an ingredient cost of barely over one and a half euros, but the reality is far more complex. The difference between the cost of the products and the final price is not all profit: you have to pay for labor, rent, insurance, utilities, taxes, and a long list of other things. The gross margin may look high, but the net margin narrows to surprising limits.
The initial calculations suggest the ingredients cost: €0.4 for three slices of bacon, €0.4 for two eggs, €0.2 for a potato, and €0.2 for electricity. Total: €1.5. If the plate sells for €5, the margin over direct cost would be 70%, but that is not profit. You have to add the amortization of the premises, the social security contributions of the waiters and cooks, licenses, income tax, social security, and other fixed costs.
And here comes the key nuance: in the hospitality business, the money is made with drinks. Drinks have a much higher margin than food. A mixed drink at a cocktail bar in Barcelona can sell for 15 euros, while the plate of eggs and bacon stays at just a few. Moreover, drinks are not perishable and require minimal handling. That is why many bars offset the low margin on food with the high margin on drinks.
A bar's accounting is a labyrinth: fixed costs are spread across all services, and seasonality plays an important role. There are businesses that survive thanks to three months of high season and others that sink with low occupancy. The question is not how much the plate costs, but how many plates you have to sell to cover the costs. The answer may discourage more than one person.
How many plates of eggs and bacon does a bar have to sell per month for the business to be viable? The answer depends on variables ranging from rent to pricing strategy, but one thing is clear: the margin on the plate is just one piece of the puzzle. Drinks are what keep the business afloat, or at least that's what those who have been in the industry for years say.
If something seems cheap to prepare, the margin must be huge. A plate of eggs and bacon has an ingredient cost of barely over one and a half euros, but the reality is far more complex. The difference between the cost of the products and the final price is not all profit: you have to pay for labor, rent, insurance, utilities, taxes, and a long list of other things. The gross margin may look high, but the net margin narrows to surprising limits.
The initial calculations suggest the ingredients cost: €0.4 for three slices of bacon, €0.4 for two eggs, €0.2 for a potato, and €0.2 for electricity. Total: €1.5. If the plate sells for €5, the margin over direct cost would be 70%, but that is not profit. You have to add the amortization of the premises, the social security contributions of the waiters and cooks, licenses, income tax, social security, and other fixed costs.
And here comes the key nuance: in the hospitality business, the money is made with drinks. Drinks have a much higher margin than food. A mixed drink at a cocktail bar in Barcelona can sell for 15 euros, while the plate of eggs and bacon stays at just a few. Moreover, drinks are not perishable and require minimal handling. That is why many bars offset the low margin on food with the high margin on drinks.
A bar's accounting is a labyrinth: fixed costs are spread across all services, and seasonality plays an important role. There are businesses that survive thanks to three months of high season and others that sink with low occupancy. The question is not how much the plate costs, but how many plates you have to sell to cover the costs. The answer may discourage more than one person.
How many plates of eggs and bacon does a bar have to sell per month for the business to be viable? The answer depends on variables ranging from rent to pricing strategy, but one thing is clear: the margin on the plate is just one piece of the puzzle. Drinks are what keep the business afloat, or at least that's what those who have been in the industry for years say.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (19 replies).
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