Profit / Rate of Return Formula

[JavaJunkie]

Is there a formula or standard that exists that gives you an idea of what your profit should be based on sales? For example, if a coffee shop is generating $200,000 in sales per year, is there an assumed amount of profit the business SHOULD be making? Is there a standard rate of return?

Also, what is the difference between cost of sales and operating expenses? Are the cost of sales the products (inventory) and the operating expenses the other stuff (rent, utilities, etc.)?

 

[fredk]

I've heard that you might expect about 15% for this industry. So on $200,000 a year, you should put in your pocket about $30,000.

 

[Comfy Place]

When you say profit, are you saying gross profit or net profit? Gross profit for the industry is somewhere around 60%-65%, if I remember right (I'm sure someone else could verify if I'm even close on this). Net profit will be a bigger variable, simply because of the remaining expenses, like rent/lease, utilities, payroll, etc..

Cost of sales is just that, the cost of selling your products. This is also referred to as gross margin. Operating expenses are those other costs of doing business (rent/lease, utilities, etc.), and when you take those away from your gross profit, you are left with your net profit, before you as an owner take any sort of draw. Cheers!

 

[John P]

Also any long term debt can be a huge factor.