This Sheet of McDonald’s Real Food Cost Is a Good Reminder of Overhead

Aug 04 2011

This is a “leaked” photo taken from a McDonald’s showing the cost of all the items that make up the menu.  I assume it was made up to remind the employees the cost of all the food they waste.  I would imagine to the average person the first thought that goes through their mind is “Wow,  they make a killing on their food”  What it really shows is how much of a business’ price is overhead.

It’s the most overlooked part of cost.  You are buying or making a product for $1 and you’re selling it for $5 and thinking you’re doing pretty well.  It’s easy to forget the wages, the matching taxes, the mortgage or rent, the advertising costs, the insurance, the vehicles, the utilities, the fuel.   Put a store on a busy street or buy a $100,000 domain and you’re adding a big expense to the cost of your product before you even have one customer.  In many cases the overhead cost is actually more than the product itself.

The same can be applied to services. The people being paid to actually perform the services get a small portion of the charged price. I have tree planters that get paid $13 an hour but I charge $55 an hour.  I have to do it because of the overhead.  It take a good amount of money to attract that customer and provide the equipment and facilities to enable me to provide that service in a professional manner.

When it comes to domains people seem to forget their biggest overhead expenses, their personal time and renewal fees.  This doesn’t even count oportunity costs of what else you could be doing with the money instead of having it sitting in domains that don’t generate any revenue.  When you hear of guys selling domains for $50,000 and $100,000 it sounds pretty exciting but many of those same people have 10,000 domains and an annual renewal cost of $80,000.  They HAVE to make sales in those ranges to make money and even then they are selling off assets to do it.  Ideally you want your assets to generate revenue without having to sell them off.

So look at the 70 cent McFlurry and the $25,000 domain sale and realize that the whole story isn’t being told.  There are a lot more costs going into both of these than many realize.

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Outsmarting the Dumb, Outworking the Smart

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7 comments

  1. Jason Stewart

    Excellent article! My online income is now more then my income as a professional for the first time ever….and only for the past 4 weeks. Its great and all, but when I count the thousands and thousands of hours of trial and error I have put into the “business” the past few years, I am making well under minimum wage and it will take a few super great months before it was worth it on a time-based calculation.

    Loved the article, and as always, there’s more to the story then whats on the surface, or something like that.

  2. AndyO

    They do mushrooms on your burgers over there? Wow, why did I never see this when I was over there?!?

  3. AndyO

    You guys get some of it, we export a lot of beef to Maccas USA. But crispy American bacon and burgers from Five Guys in NY beats anything I’ve had here.

  4. DR.VEGAS

    True…Shane. I have come to the point in my portfolio where I realize that I need to make at least three $ xx,xxx sales a year for it to be considered profitable.(not happening just now) Oh…and it would be cool if I managed to negotiate an equity stake without actually having to part with the domain.

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