In this chapter, we do our calculations with one example restaurant. We will call it "Sushi Restaurant A." Sushi Restaurant A is a fictional restaurant used only for explanation. It has 10 counter seats. It is open for lunch and dinner, 25 days a month. All the amounts and numbers of people in this chapter are examples. Prices and rents differ greatly by country, by region, and by the class of the restaurant. As you read, replace them with the numbers of your own restaurant.

27.1　How sales are made up

A restaurant's sales are made of two numbers. One is the number of guests, that is, how many guests came. The other is the average spend per guest, that is, the average amount one guest pays. Sales equal the number of guests multiplied by the average spend per guest.

This way of looking at sales matters because it lets you separate the causes when sales fall. Did fewer guests come? Or did each guest order less? The right response is completely different depending on the cause. If fewer guests came, you need ways to help people find you (Chapter 30). If each guest spent less, you review your menu and the way you recommend dishes.

Number of seats and table turnover

The upper limit on the number of guests is set by the number of seats. How many parties sit in one seat during an evening is called table turnover. If 12 people come in one evening to a restaurant with 10 seats, the turnover is 1.2. A restaurant that serves omakase (chef's choice) over two hours finds it hard to raise turnover. In exchange, its average spend per guest is high. Standing sushi bars and conveyor-belt sushi (kaiten-zushi) restaurants keep each guest's stay short and build their sales through turnover. Neither style is the right one. What matters is knowing which style your own restaurant is.

Think of lunch and dinner as two different restaurants

At lunch and at dinner, the guests, the prices, and the food are all different. So you look at the numbers separately. Let us calculate one day at Sushi Restaurant A.

1. Lunch sales　At lunch, the restaurant serves a nigiri set for 2,000 yen per person to 15 people. 2,000 yen times 15 people gives lunch sales of 30,000 yen.
2. Dinner sales　At dinner, it serves omakase for 10,000 yen per person to 12 people. 10,000 yen times 12 people gives dinner sales of 120,000 yen.
3. Daily sales　Add 30,000 yen from lunch and 120,000 yen from dinner. That makes 150,000 yen a day.
4. Monthly sales　The restaurant is open 25 days a month. 150,000 yen times 25 gives 3,750,000 yen.

This 3,750,000 yen is the starting point for the calculations in this chapter. Lunch brings in 750,000 yen a month, and dinner brings in 3,000,000 yen a month. Lunch has more guests, yet dinner makes 80 percent of the sales. When you separate the numbers like this, you can see where to put your effort.

27.2　Food cost and the food cost percentage

Food cost is the price of the ingredients used to make the food. At a sushi restaurant, this means fish, rice, vinegar, nori, wasabi, gari (pickled ginger), soy sauce, tea, and so on. The purchase cost of sake and other drinks is also included in food cost.

The food cost percentage is the share of sales taken up by the cost of ingredients. You find it by dividing food cost by sales. If Sushi Restaurant A's monthly food cost is 1,500,000 yen, then 1,500,000 yen divided by 3,750,000 yen is 0.4. In other words, the food cost percentage is 40%. This means that out of every 10,000 yen in sales, 4,000 yen goes to ingredients.

Sushi restaurants tend to have a high food cost percentage

In general, a common guideline for restaurants is a food cost percentage of about 30 percent. Sushi restaurants are said to tend to run higher than this, and it is said to be common for them to reach about 40 percent. There are three reasons.

• The main ingredients are expensive. Sushi uses neta (toppings) such as tuna and uni (sea urchin), which cost a lot to buy in the first place.
• It is hard to add value through cooking. Unlike stews or fried food, much of sushi is raw fish served as it is. So the price of the ingredients shows up directly in the price of the dish.
• The ingredients spoil easily. Raw fish does not keep, so sometimes unsold fish can only be thrown away. What you throw away is also food cost (Chapter 28).

A high food cost percentage is not a bad thing. For guests, it means that much of what they pay goes into good ingredients. However, it also means less money is left for other expenses. That is why it is especially important for a sushi restaurant to count its food cost carefully.

The food cost percentage differs for each topping

The whole restaurant's food cost percentage is a single number, but it varies widely when you look at each topping. In the example of Sushi Restaurant A, suppose the restaurant sets a price per piece and sells each topping separately.

In this table, chutoro has a high food cost percentage of about 70 percent, while tamagoyaki is low at 20 percent. If chutoro is most of what sells, the whole restaurant's food cost percentage goes up. If tamagoyaki, hikarimono (silver-skinned fish), and rolls (makimono) sell well, it goes down. The whole restaurant's food cost percentage is decided by the mix of which toppings sold, and how much of each.

27.3　Yield: the purchase price is not the true cost

Yield is the share of what you buy that you can actually use as a product. When you buy a whole fish, the head, bones, skin, guts, and dark meat (chiai) do not become nigiri toppings. In general, the flesh you can use as sushi toppings from a whole fish is said to be about 30 to 40 percent of the original weight for red sea bream. For blue-backed fish such as horse mackerel and mackerel, it is said to be about 40 to 50 percent (Chapter 11). It changes with the way you fillet the fish and how much of it you use as toppings.

If you calculate food cost without yield, you will badly misjudge it. Let us calculate step by step, using the example of Sushi Restaurant A buying one red sea bream.

1. Purchase price　The restaurant bought a 2-kilogram red sea bream at 2,000 yen per kilogram. It paid 4,000 yen.
2. Weight of usable flesh　Assume a yield of 35%. 35% of 2 kilograms is 700 grams. The remaining 1.3 kilograms is head, bones, and skin.
3. Number of pieces　Assume the topping for one piece weighs 14 grams. 700 grams divided by 14 grams gives 50 pieces.
4. Cost per piece　4,000 yen paid, divided by 50 pieces, is 80 yen per piece.

Here is a common mistake. People think, "2,000 yen per kilogram is 2 yen per gram, so 14 grams is 28 yen." That would be the price only if the whole fish could be used as toppings. In reality, you also paid for the head and the bones, so the cost per piece is 80 yen. If you set prices believing the cost is 28 yen, the more you sell, the more money you lose.

There is just one thing to remember. The price of usable flesh is the purchase price divided by the yield. If you use a fish bought at 2,000 yen per kilogram with a yield of 35%, divide 2,000 yen by 0.35. The usable flesh costs about 5,700 yen per kilogram.

Raise the yield by using trimmings and ara (heads and bones)

Not everything that cannot be used for nigiri has to be thrown away. The trimmings left after cutting saku (trimmed blocks of fillet) can be finely chopped and used in rolls or gunkan (battleship rolls). The head and backbone make stock for ushio-jiru (clear fish soup) or miso soup. The collar (kama) can be grilled and served as a side dish. When you use more parts like this, the same 4,000 yen turns into more things to sell. This is what raising the yield means.

Knife skill also shows in the yield. If your filleting leaves thick flesh on the backbone, you are throwing away tens of grams of flesh each time (Chapter 23). The difference is small for one fish. But day after day, month after month, it adds up to a large amount of money.

27.4　How to set prices

There are two main ways to think about setting prices. One is to set them from food cost. The other is to set them from your guests and the going rate. In practice, you compare the two and then decide.

Setting prices from food cost

In this method, you decide on a target food cost percentage and work backward to the price. The price is the cost per piece divided by the target food cost percentage. If one piece of red sea bream costs 80 yen and you want a food cost percentage of 40 percent, divide 80 yen by 0.4 to get 200 yen. The strength of this method is that the calculation is clear and you are unlikely to lose money. However, it does not consider whether guests will feel the price is high or low.

Setting prices from guests and the going rate

The other method starts from what kind of guests you have and how much they will pay. The price guests accept changes with the prices at nearby sushi restaurants, your location, your interior, and the standing of your chefs. Even for the same red sea bream nigiri, it is natural for the price to differ many times over between a casual place near a station and a restaurant you can only enter by reservation. This is because guests pay not only for the ingredients but also for skill, time, and the comfort of the restaurant.

When the prices from the two methods are far apart, review one of them. Suppose a topping can only sell for 200 yen at the going rate, but works out to 400 yen when you calculate from food cost. Then consider changing your supplier or the way you use it, or taking it off the menu.

Build omakase by averaging the food cost

With omakase, you balance the food cost across the whole course, not topping by topping. Take Sushi Restaurant A's 10,000-yen dinner omakase. With a target food cost percentage of 40 percent, you can spend 4,000 yen per person on ingredients. Even if you include toppings with a high food cost percentage, such as chutoro and uni, the whole course stays within 4,000 yen when you combine them with white fish, hikarimono, shellfish, tamagoyaki, rolls, and soup. If you serve only expensive toppings, the food cost will not work. If you serve only cheap ones, guests will not be satisfied. The skill of omakase is to arrange expensive and affordable items in a flow of flavors.

Market price as a price

Writing market price on the menu means the price is set by that day's purchase price. It is used for toppings whose going rate rises and falls sharply. However, some guests eat without knowing the price and are surprised when they get the check. For market-price toppings, state that day's price clearly before you take the order. A restaurant that gives a vague answer when asked the price loses trust (Chapter 26).

27.5　The big picture of a restaurant's money: reading the income statement

From your sales, what money goes out, and how much is left at the end? The statement that puts all of this on a single sheet is called the income statement. From the English initials of "profit and loss," it is also called the P/L. A tax accountant or accounting software will prepare it for you, but reading it is the owner's job. Let us look at one month at Sushi Restaurant A, from top to bottom.

In words, it goes like this. Take 1,500,000 yen for ingredients away from sales of 3,750,000 yen, and 2,250,000 yen of gross profit is left. Gross profit is the money you can use to run the restaurant after paying for ingredients. From it, you pay 750,000 yen in labor cost, 300,000 yen in rent, 150,000 yen in utilities, and 450,000 yen in other expenses. Other expenses include supplies such as packaging and detergent, card payment fees, phone and internet costs, repairs, advertising, and interest on loans. What is left after paying everything is the profit of 600,000 yen.

Profit is not yet the owner's money

Even though 600,000 yen is left, you cannot spend all of it. At a restaurant run by one owner as a sole proprietor, the labor cost of 750,000 yen usually does not include the owner's own pay. The owner's living expenses come out of this 600,000 yen. On top of that, from this money you pay taxes, repay the principal on loans, and set aside savings to replace an aging refrigerator. Even when you make a profit, the cash left in hand is less than you think. Knowing this leads to cash flow management in 27.7.

The FL ratio: looking at ingredients and people together

The largest expenses at a restaurant are ingredients and labor. In English, ingredients are "Food" and labor is "Labor." So the two added together and divided by sales is called the FL ratio. At Sushi Restaurant A, 1,500,000 yen in food cost plus 750,000 yen in labor cost is 2,250,000 yen. Divide this by 3,750,000 yen, and you get 60%.

In general, the guideline for the FL ratio is said to be 60 percent of sales or less. Above that, it becomes hard to have profit left after paying rent and other expenses. Because sushi restaurants have a high food cost percentage, the thinking is to hold down labor cost through how you use staff and how you plan your prep, and to keep the balance through the FL ratio. It is important not to feel pleased or worried by looking only at the food cost percentage or only at labor cost. Also, the guideline for rent is generally said to be 10 percent of sales or less (Chapter 29).

27.6　The break-even point: how many guests a month to avoid a loss

"How much do I need to sell each month to avoid a loss?" Surprisingly few owners know the answer. The level of sales at which sales and expenses are exactly equal, and profit is zero, is called the break-even point. Above it, you are in the black. Below it, you are in the red.

Fixed costs and variable costs

Before calculating, divide expenses into two kinds. Fixed costs are money that goes out even if not a single guest comes. Examples are rent, staff wages, and lease payments. Variable costs are money that increases as guests increase. The main example is ingredients. If guests do not come, you do not use fish, so variable costs go down.

To keep things simple for Sushi Restaurant A, we treat only ingredients as a variable cost, and all other expenses as fixed costs. Labor cost of 750,000 yen, rent of 300,000 yen, utilities of 150,000 yen, and other expenses of 450,000 yen make fixed costs of 1,650,000 yen a month.

Let us calculate

1. Money left from every 10,000 yen in sales　The food cost percentage is 40%. When you sell 10,000 yen, 4,000 yen goes to ingredients and 6,000 yen is left. So 60 percent of sales is money you can use to pay fixed costs.
2. Sales that cover the fixed costs　To cover 1,650,000 yen in fixed costs with that 60 percent, divide 1,650,000 yen by 0.6. The answer is 2,750,000 yen. This is Sushi Restaurant A's break-even point.
3. Sales needed at dinner　If lunch sales stay at the current 750,000 yen a month, dinner needs 2,750,000 yen minus 750,000 yen, which is 2,000,000 yen.
4. Guests needed at dinner　The average spend per guest at dinner is 10,000 yen. 2,000,000 yen divided by 10,000 yen is 200 guests a month.
5. Guests needed per evening　The restaurant is open 25 days a month. 200 guests divided by 25 days is 8 guests an evening.

In short, if lunch stays as busy as it is now, Sushi Restaurant A avoids a loss with 8 guests an evening at dinner. It now has 12 guests an evening, so it has a margin of 4 guests. Knowing this "guests per evening" number changes how you see each night's service. On a day with only 5 reservations, you can act early.

There are only three ways to lower the break-even point. Reduce fixed costs. Lower the food cost percentage so that more money is left from each guest. Or raise the average spend per guest. None of these is easy. That is exactly why it is important to do this calculation before you open your restaurant (Chapter 29).

27.7　When money runs short: cash flow management

On the books, the restaurant is making a profit, yet on payment day there is not enough money. This really happens at restaurants. Managing money coming in and going out by date is called cash flow management. A restaurant does not go under only when it loses money. It goes under when it runs out of cash.

Profit and cash are different

There are four main reasons why profit and cash do not match.

• Money comes in late　Payments made by card or electronic payment do not arrive on the spot. The payment company deducts its fee and deposits the money anywhere from a few days later to the following month.
• Money goes out early　You buy fish every day. Payment to the market or to intermediate wholesalers is set by each supplier, for example cash on the spot, or a monthly bill closed at the end of the month and paid the next month. The money for ingredients goes out before they are sold.
• Some payments are not expenses　Repaying the principal of a loan is not an expense. You repay it out of profit. On the other hand, the cost of the interior and equipment is counted as an expense little by little over several years. This is called depreciation. The year you pay and the year it becomes an expense do not match.
• Taxes come later, all at once　In Japan, the consumption tax you collect from guests along with sales is later paid to the national government in a lump sum. Tax on income is also paid later, for a whole year. The consumption tax you collect is not the restaurant's money. If you spend it, you will be in trouble when it is time to pay. Tax systems change by country and over time, so always check with a tax accountant or the tax office.

At year-end, both sales and payments swell

The year-end, a busy season for sushi restaurants, needs special care. At year-end, the market price of fish goes up, and you buy more (Chapter 28). Payments for December purchases go out quickly. But December sales paid by card may not arrive until after the new year begins. In the month with the highest sales, the cash in hand can be at its lowest.

How much cash to keep on hand

Keep cash on hand for months when sales fall, or for the day a refrigerator suddenly breaks down. How much to keep depends on the restaurant. In general, it is said that a guideline is at least three months of fixed costs. For Sushi Restaurant A, fixed costs are 1,650,000 yen a month, so three months is about 5,000,000 yen. For a newly opened restaurant, saving that much is hard. That is why your opening funds should include not only the cost of the interior and equipment, but also working capital to keep the restaurant running even with losses for a while (Chapter 29).