Part IV — Management and Quality
Costing and the Price
Costi e prezzo
Making good gelato and keeping a shop open are two different skills. Closing Part IV, this chapter takes up what makes taste stand as a business — how to know the cost and design the price. Numbers are a tool for doing good work again tomorrow.
It becomes value only if it continues
The chapters so far have shown how gelato is designed (Part I) and made (Part II). They have shown it guarded, diagnosed, and sent into the world within the law — the first half of Part IV. But however good the thing made, a shop that does not pay does not last. And the gelato of a shop that has closed is eaten by no one. Taste becomes a value to anyone only once it can be carried on as a business.
Costing and the design of the price are the craft of that. No difficult mathematics is needed. What is needed is to know correctly what one serving of gelato costs, and to reason through what price will let the shop carry on.
Cost is built in two layers
Cost divides broadly in two. Variable cost, which rises and falls with the amount made, and fixed cost, which falls due whether anything is made or not.
| Class | Character | Chief examples |
|---|---|---|
| Variable | Rises and falls in proportion to the amount made | Materials, packaging, part of the utilities |
| Fixed | Falls due at a constant rate, whatever the amount | Rent, wages, depreciation on the machines, standing charges |
By the ordinary classification of cost accounting. The actual amounts and proportions differ from one business to another, and none are given here.
The distinction matters because the two behave in opposite ways. Per serving, the variable cost stays near constant. The fixed cost, per serving, grows lighter the more is made and sold. Cost, in other words, is tied closely to the quantity produced.
Building up the material cost
At the center of the variable cost is the cost of materials. And the calculation is already in this book — the balancing of Chapter 5. Where the formulation is written in components and amounts, multiply each material by its unit price and add. The material cost of one mix is there. Divide by the servings it yields, and the material cost of one serving follows. The balancing sheet is a recipe and a costing sheet at once.
The formulation on paper, though, does not run as written. Several kinds of shrinkage have to be allowed for.
- Loss — what is discarded, what is overmade, what goes into trials
- Yield — the share of what is bought that can actually be used; what is left once skin and stones are removed
- Air (overrun) — freezing adds volume, and adds no cost. Count the servings by volume and the cost appears to fall, but that is close to an illusion. Holding the cost on a weight basis is the sound way
Underestimate the cost by leaving these out, and the design of the price goes wrong at its root. The record urged in Chapter 12 works here too. Keep the amounts actually used and the losses actually incurred, and the material cost in hand is the real one, not the one on paper.
How the price is decided
To the material cost, add the share of the fixed cost that one serving must carry, and the profit to be secured. That is the build-up from cost. The share of the selling price taken by the material cost is called the food cost ratio. It is a leading indicator of the health of a business. Watching that ratio continuously is where pricing starts.
Price, though, is not settled by cost alone. The same serving carries a different workable price according to the location, the name of the shop, and the quality of the experience. Cost gives the floor — below this, the shop does not last. The ceiling is set by the market and by value. Selling cheap in disregard of cost does not last, and a high price with nothing behind it does not last either. The design of the price is the search, between the two, for the one point a given shop can sustain.
This relation, on one sheet, is the break-even point. Where revenue passes total cost, and only there, a business begins to make a profit and can carry on. The heavier the fixed cost, the further to the right the point recedes, and the more must be sold. Raise the price, sell more, or bring the cost down — the choices open to a business can be thought through on this chart.
Numbers are a tool for continuing
Costing is not a craft for making things cheaply. It is the craft of knowing what is needed in order to go on using good materials. Hold the cost correctly, and a judgment becomes possible that serves quality and the business at once. This fruit is dear, and at this price it can be kept on. Rough reckoning works in one direction only: toward giving the good material up.
And the ground of it is, again, the record. The record of the formulation (Chapter 5), the record of materials and steps (Chapter 12). The record this book has urged again and again was for the reproduction of taste. It was for the proof of safety too, and for carrying the business on.
With this, Parts I to IV are complete. From the physics of sugar and water, on to milk and fat, the stabilizers, balancing, and then making, keeping, applying, managing. One frozen dessert, designed as science, made as craft, and made to stand as a business — that round has been walked.
But being able to design a thing, and being able to put it out exactly so every day, are again two different skills. Part V takes up the work of running that built structure as a day in the shop. That means the handing over of temperature, and the paths through the workshop.
Numbers are a map, not a destination. The artisan holding the map decides the last step with the tongue and with experience. Every chapter in this book exists for that step.