So how much profit are they making off me, anyway?
March 28, 2010 1:41 PM   Subscribe

This is a four-part question, in which I ask: how much profit does a merchant typically make on the following products and services: A $2.00 slice of plain pizza, a $5.50 cycle on a laundromat clothes washer, a $1.50 box of strawberries and a $0.25 cycle of 8-10 minutes in a laundromat dryer?

I'm assuming that the merchant's costs would be those typical of the New York City area. But information about other cities is welcome as well.

Many thanks in advance.
posted by jason's_planet to Work & Money (16 answers total) 11 users marked this as a favorite
Does this help? Rocket Joe's on the Lower East Side expenses, costs, markup and revenue. You'll need to divide the number to get an approximate for per-slice.
posted by Houstonian at 1:58 PM on March 28, 2010 [2 favorites]

Best answer: I just read an article about $1 pizza in NYC (I think this is the article) and the guy said he makes about $0.15 - $0.20 per slice so figure a buck on the $2 pizza. I do not know the other markups, except that a guy who worked with me on wall street owned two laundry mats and said he made decent cash money as opposed to taxable money.
posted by JohnnyGunn at 2:03 PM on March 28, 2010

Best answer: At the store I work at in Chicago, we haven't seen strawberries we could sell for under $2 since... last summer, if I'm remembering right.

As of Friday's delivery, we were paying $11 for a flat of 12 boxes (that's $1.38 a box - the cheapest price we've seen in months - a sign of Spring!) and selling for $2 a box (tax included) at a margin of 31% (which is in the neighborhood of what we shoot for). Profit, then, is about $0.58 a box. (Sometimes, in the summer when they're cheap and plentiful, we sell berries for less than a 31% margin since they get people in the store and make them happy).
posted by bubukaba at 2:11 PM on March 28, 2010

Best answer: The word Profit is far different from the margins you are being quoted above. For example, that box of strawberries is quoted as costing around 92 cents. This does not account for the incremental wage cost of the person who unloaded them, the person who stocked them out front, the clerk at the register, or their additional payroll costs, such as taxes. Add in overhead items such as lights, rent, insurance, business licenses and such and you need to know a lot more about each business enterprise before you can answer your questions. Does that pizza place sell 100 slices of pizza a night or 1000? The difference is a tenfold difference in the attributable overhead.

There is no accurate answer to your question on a generalized basis.
posted by Old Geezer at 2:22 PM on March 28, 2010 [7 favorites]

Yeah, Old Geezer is right about real profit being a lot more complicated.

All produce items go bad a lot, too, which adds more complication. We sell some of this as "bargain produce" for a dollar a box or bag, and some just gets thrown out. When strawberries are cheap, this happens less. When they're more expensive, it happens more. Etc.
posted by bubukaba at 2:36 PM on March 28, 2010

Seconding Old Geezer and bubukaba. Another hidden cost that occurs to me--if the washer and dryer are coin-operated, then you'll need to sort and count the coins and have your bank deal with them. This is usually free if you're a personal customer depositing the contents of your change jar every month or so, but I understand that there's usually a charge involved if you're a business with hundreds or thousands of dollars of coins to deal with every week.
posted by tellumo at 2:57 PM on March 28, 2010

It's important to consider (as is not the case with launromats and usually not with strawberries) that $2 single-cheese-slice sales at pizzerias are loss leaders -- might cover direct food costs, depending upon fairly volatile wholesale levels for cheese and sauce, but no contribution to total costs of business in a high-cost location. The point is to sell sodas and waters (5x-10x markup), beer (2x-3x markup), and toppings (2x-5x markup).
posted by MattD at 4:37 PM on March 28, 2010

Best answer: Right. As a former retail manager, I can tell you that gross profit (retail price minus the wholesale cost) seems really, really high for a lot of things. French fries, fountain beverages, computer cables can all have 4x to 10x markup.

Once you subtract out the other costs like rent, labor, electricity, you start to get pretty much break even. We had one location that had to battle to break even 10.5 months of the year and made all of its profit in the holiday season. For many restaurants and groceries, *net* profit at the end of the year is in the low single digits, if anything.

Further, as others mention, the cost per item might seem lower if you do it per piece, by weight. (A slice of pizza contains 1 oz of sauce, 4 oz of flour, etc.) But to get anywhere near accurate, you need to account for waste. Managing that is where a lot of the profit comes from.

(Even the same thing throughout dayparts- that $2 slice of pizza might be really, really profitable during lunch hour, dinner hour and after the shows/bars let out, while it might cost $30 to sell one at 3pm.)

So it really doesn't matter what the profit and loss of an individual item or individual month is- what matters is the end of the year. And many times, after you run the numbers, you find that most of the profit is in controlling the ancillary items- not wasting napkins, not using too much cleaning products, keeping the equipment off when it isn't needed, etc.
posted by gjc at 4:51 PM on March 28, 2010 [2 favorites]

I'm an accounting student.

Gross profit and net income are different.

Gross profit is net sales revenues minus cost of goods sold. Note that I said net sales, which accounts for sales allowances (discounts) and returns. Cost of goods sold includes direct materials, direct labor and applied overhead.

Net income is gross profit minus operating expenses. The calculations would include indirect material and labor, and overhead, plus taxes, etc. The "net income" of a company is what the public generally refers to as their "profits".

Note also that what was mentioned above about volume can change the figures. Producing more can cost more in direct labor and material and variable overhead, but it can also lower fixed overhead costs per unit.
posted by asciident at 7:06 PM on March 28, 2010

According to the public accounts Pizzaexpress, a pizza chain near me, they have a turnover of 294,882,000; and a profit (before taxation) of 59,071,000. Their cost of sales is 224,155,000.

In other words, they have a (pretax) profit margin of 20%, and a gross margin of 24%. Their historical profit margins have been between 22% and 8.6%

For another pizza chain, Pizza Hut, the turnover is 358,626,000; the profit (before taxation) is -13,306,000 for a pretax profit margin of -3.71% (the cost of sales isn't given). In previous years, their profit margin has been between -3% and 9.2%.
posted by Mike1024 at 12:59 AM on March 29, 2010

Best answer: To answer the washer and dryer questions you'd need to know things like how old the machines are (i.e. how efficient), the distribution of small and large load machines, whether the owner keeps them regularly maintained or just lets half of them sit broken for long periods of time, how much the rent on the building runs and hence its location, how much per therm and kWh he pays for gas and electricity, and so on.
posted by Rhomboid at 2:27 AM on March 29, 2010

Best answer: New York mag had an article with the budget for a NY pizza joint.
posted by smackfu at 7:05 AM on March 29, 2010

At the store I work at in Chicago, we haven't seen strawberries we could sell for under $2 since... last summer, if I'm remembering right.

Stanley's had them at $0.80 this saturday.

how much profit does a merchant typically make on the following products and services

It depends dramatically on what you want to include and the scale of the business. Since costs and margins are often very non-linear it also depends on whether you mean the N+1th slice of pizza or the average over all N slices of pizza.
posted by a robot made out of meat at 8:34 AM on March 29, 2010

Stanley's, at least according to rumor, sells most of their produce at a loss and makes most of their profit by selling cardboard. Kind of an amazing business!
posted by bubukaba at 11:16 AM on March 29, 2010

Not to mention that produce from Stanley's gets moldy before you get it home.
posted by hwyengr at 11:23 AM on March 29, 2010

Response by poster: Thanks, guys!
posted by jason's_planet at 6:10 PM on March 30, 2010

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