Cost of Goods Sold (COGS) as a percentage of Income

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Postby sparky » Tue Jun 19, 2012 2:17 pm

Does anyone out there have any "rules of thumb" or benchmark guidelines as to what your COGS should run (as a % of Income) for a retail roaster and wholesaler?
I have been looking at my P&L and noticed my COGS rising over time, but that also agrees with my growth in wholesale business (makes sense as I would think green bean usage would be a higher component of COGS for a wholesale operation than just roaster/retailer). Nonetheless, I am still a little concerned as my COGS is rising to close to 38%.

Anyone have good info on what this figure should be running?

Thanks in advance for any help!
sparky
 
Posts: 6
Joined: Wed Mar 24, 2010 1:24 pm
First Name: Tom
Last Name: Walsh
City: Cambria
State: CA
Zip Code: 93428
Company: Cambria Coffee Roasting Company
Occupation: roaster/owner
Roasting Since (Year): 2001

Postby Phil.Johnson » Fri Jul 06, 2012 3:12 pm

Is there a specific ratio you are trying to calculate like "inventory turnover" or "net profit margin"? Just looking at COGS/revenue is not one of the more common financial ratios.

As an example for Net Profit Margin; that equation uses COGS but only to determine net profit for the final equation.

In 2009, Donna Manufacturing sold 100,000 widgets for $5 each, with a cost of goods sold of $2 each. It had $150,000 in operating expenses, and paid $52,500 in income taxes. What is the net profit margin?

Plugging this information into our formula, we get:

$97,500 net profit ÷ $500,000 revenue = 0.195 net profit margin

The answer, 0.195 [or 19.5%]. This was taken from http://beginnersinvest.about.com/od/incomestatementanalysis/a/net-profit-margin.htm.

Likewise, COGS divided by the average inventory over a period will give you your inventory turnover. The final result can guide your inventory purchase decisions and also tell you how efficient you are in turning over your inventory.

As for benchmarking your results for your company, it depends on how large you are, how much your sales are etc. A reliable start would be to contact the Small Business Administration (SBA). They have volunteers in your area that have good credentials to help you analyze your financial statements for no charge. SBA local resources are located here: http://www.sba.gov/category/navigation-structure/starting-managing-business/managing-business/local-resources.

I highly recommend going this route. You learn things and also get to network with business folks in your community.
Phil.Johnson
 
Posts: 29
Joined: Thu Aug 25, 2011 5:48 am
First Name: Phil
Last Name: Johnson
City: Sheldonville
State: MA
Zip Code: 02070
Company: Sheldonville Roasters
Occupation: Roaster/Owner
Roasting Since (Year): 2003

Postby Phil.Johnson » Tue Jul 10, 2012 8:27 am

Does anyone out there have any "rules of thumb" or benchmark guidelines as to what your COGS should run (as a % of Income) for a retail roaster and wholesaler?


I actually found the document you are looking for. It's in the SCAA library and is called "Excerpts from
1995 Operating & Financial Ratio Study For Specialty Coffee Retailers" by Don Holly.

This document lists a whole bunch of bench marks for ratios on page 7.

They don't list COGS/income but rather COGS over sales.

The average for all companies surveyed was 43.44% and the top quartile was 43.05%.

So if your COGS/sales = 38%, then you are doing better than average based on specialty coffee retailers surveyed back in 1995.

I'm not sure a direct link will work, but try this: http://slk020.liberty3.net/SCAA/blobs/cfiles/2005%5C03%5CSCAAPUB_Holly_FinancialRatiosExcerpts.pdf
Phil.Johnson
 
Posts: 29
Joined: Thu Aug 25, 2011 5:48 am
First Name: Phil
Last Name: Johnson
City: Sheldonville
State: MA
Zip Code: 02070
Company: Sheldonville Roasters
Occupation: Roaster/Owner
Roasting Since (Year): 2003

Postby sparky » Wed Jul 25, 2012 6:12 pm

Wow, Excellent responses Phil. I'm sorry it took so long to respond...I had almost given up hope on a response.

I'm going to review all of what you posted and after I've had a chance to absorb it, I'll post my thoughts. However, I indeed made an error in terminology as you caught. I had meant to say "Gross Sales" but instead said "Income". My bad and thanks for catching it.

And, thanks for a thoughtful and detailed response!

Tom
sparky
 
Posts: 6
Joined: Wed Mar 24, 2010 1:24 pm
First Name: Tom
Last Name: Walsh
City: Cambria
State: CA
Zip Code: 93428
Company: Cambria Coffee Roasting Company
Occupation: roaster/owner
Roasting Since (Year): 2001


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