Best-selling add-on: biggest Margin leak

Challenge

A neighborhood cafe tracked revenue closely and cost loosely. Margin was one blended number for the whole operation, so the popular items were assumed to be the profitable ones.

That assumption was costing cash every day. On the busiest sales in the business, a supplier's markup was going out the door with every unit, and nothing in the reports showed it.

Approach

We built per-product margin: actual cost against actual price, item by item, from the supplier invoices and the point-of-sale data. Then we ranked the menu by volume and by margin and looked at where the two lists disagreed.

Outcome

The best-selling add-on, a pastry bought in from a supplier, was among the lowest-margin items on the menu. It wasn't why customers came in, so it could be changed without risk to the coffee order it rode on.

The cafe switched to a pastry baked in-house. Same slot, same price, lower cost. Profit rose by the equivalent of 5% of revenue, from one item.

What we learned

High volume doesn't rescue a thin margin. It multiplies it. Blended margin will tell you the business is fine; only per-product margin tells you which item is the problem, and add-ons are the cheapest place to fix one.