Outlet profitability: which outlet really makes money?

Busy is not the same as profitable

Ask most owners which branch is their best, and they name the one with the highest sales. Sometimes that is right. Often it is not. A busy outlet in an expensive mall can hand most of its sales straight to the landlord and the payroll.

Outlet profitability means working out what each outlet keeps after its own costs, and then after a fair share of the costs the whole group carries.

Step 1: the costs that belong to one outlet

Start with sales, then take off the costs you can point to and say "this outlet caused it".

Cost of goods: what you paid for the products or ingredients that outlet sold. Rent: the outlet's own rent and service charge. Staff: wages and allowances for the people who work there. Utilities: the outlet's own electricity, water and internet.

What is left is the outlet profit before shared costs. Accountants sometimes call it the outlet contribution, because it is what the outlet contributes towards the costs of running the group.

Step 2: the shared costs, split fairly

Some costs belong to no single outlet: the head office, the accounts team, the owner's salary, a central kitchen, a delivery van that serves every branch. They still have to be paid, so each outlet should carry a share.

The fair way is to split each shared cost by whatever drives it. Head office effort tends to grow with the size of the business, so splitting it by share of sales is reasonable. Delivery cost grows with the number of trips, so split it by trips. Splitting everything equally is simple, but it makes a small outlet carry as much head office as a large one.

A worked example in RM

Here is a made-up example for one month, with three outlets.

Outlet A: sales RM 200,000, cost of goods RM 80,000, rent RM 25,000, staff RM 35,000, utilities RM 6,000. Profit before shared costs: RM 200,000 - 80,000 - 25,000 - 35,000 - 6,000 = RM 54,000.

Outlet B: sales RM 150,000, cost of goods RM 63,000, rent RM 12,000, staff RM 28,000, utilities RM 4,000. Profit before shared costs: RM 150,000 - 63,000 - 12,000 - 28,000 - 4,000 = RM 43,000.

Outlet C: sales RM 100,000, cost of goods RM 45,000, rent RM 18,000, staff RM 22,000, utilities RM 3,000. Profit before shared costs: RM 100,000 - 45,000 - 18,000 - 22,000 - 3,000 = RM 12,000.

Shared costs are RM 36,000 for head office and RM 18,000 for delivery, RM 54,000 in all. Group profit is RM 54,000 + 43,000 + 12,000 - 54,000 = RM 55,000.

Equal split or fair split: different answers

Split equally, each outlet carries RM 54,000 / 3 = RM 18,000. Outlet A makes RM 36,000, Outlet B makes RM 25,000, and Outlet C loses RM 6,000. It looks like C should close.

Split fairly, head office goes by share of sales. Total sales are RM 450,000, so A carries 200/450 of RM 36,000 = RM 16,000, B carries 150/450 = RM 12,000, and C carries 100/450 = RM 8,000. Delivery goes by trips: A had 12 trips, B 12 and C 6, so 30 trips at RM 600 each. A carries RM 7,200, B RM 7,200 and C RM 3,600.

Now Outlet A makes RM 54,000 - 16,000 - 7,200 = RM 30,800. Outlet B makes RM 43,000 - 12,000 - 7,200 = RM 23,800. Outlet C makes RM 12,000 - 8,000 - 3,600 = RM 400. Together that is still RM 55,000. C is thin, but it is not losing money.

Before you close an outlet

The most important test is not either split. It is this: if Outlet C closed tomorrow, which costs would actually disappear?

Its own cost of goods, rent, staff and utilities would go. Head office would not; the RM 36,000 would simply be spread over A and B. At best, delivery might drop by C's share of RM 3,600. So the group would lose C's RM 12,000 of profit before shared costs and save at most RM 3,600. Group profit would fall from RM 55,000 to RM 46,600.

So a weak outlet that still covers its own costs is helping to pay for head office. The better move is usually to fix it: renegotiate the rent, look at the staff roster, or check why its cost of goods is the highest share of sales of the three.

Ask about your own outlets

This is a question you can ask iSenang, your AI data analyst, in plain words, for example "which outlet made the most profit last month after rent and staff?". It works from your own sales and accounting books, and if your books do not split a cost by outlet, it says so instead of guessing.