Restaurant Profitability Blog

The Three Ways to Calculate Your Food Costs

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Running a restaurant is a breeze, right?

Ok, maybe not.

You’re a proud business owner. And there’s no doubt you keep tabs on what does well for you and your customers.

But when you see the profits you’ve brought in at the end of a busy month, are you content?

Happy? Ecstatic? Disappointed? Sad? Optimistic for change?

All of these happen, both at new and established businesses. And, they’re all OK.

One thing you shouldn’t feel? Total shock.

If you’re surprised that profits are not what they should be, maybe it’s time to take a step back and take a good, hard look at your food costs.

They’re vital to track. Otherwise, that shock may become a familiar feeling.

When it comes to food cost management, there are both good and bad ways to get started. We’ve got three methods – some better than others – for you to try.

#1: Tried, True, & Exhaustive: A Full Count

If you’re using the most old-fashioned and reliable methods of calculating your food costs – doing a full, complete count – you’ve got to be thorough to the last digit.

This means standing at every shelf with a clipboard in hand, counting and tallying everything that’s in front of you.

Are you noting absolutely everything? In this method, you cannot afford to skip even a shred of cheese or a single vegetable.

You also can’t really afford to do this less than twice a week– it’s the best way to keep an accurate, constant eye on your COGS.

In this method, it’s also important to keep tabs on the prices for your ingredients. That way, you can see where you might be overpaying or where you can cut costs, then making the right adjustments.

Just note: If you don’t have a proper method for keeping those stacks of invoices organized, this will take forever.

When counting all your inventory by hand, organization is key. Make a routine out of it, don’t get lazy, and have accountability. If you have staff members you can trust to do the same quality of work, delegate to them.

Most importantly, though, doing a full and complete count is a time suck with too much room for mistakes. When we say you need to account for every scrap of food, we mean it.

And for every one of those small miscounts or skipped boxes or bottles, you could be jeopardizing the accuracy of your COGS. This means your adjustments will be off as well.

Inconsistent numbers and incomplete spreadsheets will slowly chip away at the overall success of your business.

#2: Guessing Games: Fudging the Numbers

Being caught up in the hustle and bustle of your business is exciting for any restaurant owner.

But, it also means not being able to devote yourself to time-consuming tasks. Like counting inventory.

So, you decide you can just do a “partial” inventory.

It’s the end of a long week, and you’re standing at the entrance to the walk-in freezer with vast amounts of product in front of you probably sounds like a nightmare. You want to just close the door and get out of there.

You know keeping your COGS accurate and low is important, but there are a dozen other things on your mind.

Or maybe you just want to get home before 1AM for once.

So you start to think that you can breeze through your inventory count. There’s no need to be thorough and meticulous – if you guesstimate, you’ll be “close enough.”

What’s a few skipped items, after all? Business is booming, or at least you think it is. Fudging the numbers is fine! And the staff you’ve asked to help with inventory feels the same way, even though you’ve bribed them with a free meal.

On top of all that, once you do your “count,” you don’t really feel the need to update the prices in your spreadsheet. There’s no way they’ve changed that much in a month.

If you haven’t caught the sarcasm yet, consider this your warning.

While this method may be faster than doing a meticulous count twice a week, it’s not going to get you the accuracy you truly need.

You’ll be getting COGS numbers that are all over the place. One week it’s high, the next it’s low. There’s no consistency, which means you can’t truly make the correct changes.

Or, because you’re using old data, you could be missing price creep, price spikes, and more. And you’re jeopardizing everything you’ve worked for over time.

All because you wanted to settle for a rough estimate instead of having a reliable system in place.

#3: Back to the Future: Using Technology

When you lose the tight grip on your costs and food amounts, you start down a slippery slope. You need a reliable, consistent method and system. And the correct software can provide that for your restaurant. 

With technology adapting and evolving over time to cater to the restaurant business, you are running out of excuses for not having a well-oiled machine.

There are apps that make counting easy, software that keeps you updated on prices, and some tech even removes the need to count altogether (we always said we wouldn’t need math growing up, right?).

It’s the best of both worlds. You’re getting the accurate numbers you need, but with the right technology, you’re not spending time you don’t have.

Doing things old-school isn’t always the most effective, efficient, or helpful way.

Instead of freezing your hands counting jars in the walk-in, use those hands to input numbers quickly and streamline the process.

Old spreadsheets and not having an automated way of counting are detrimental to running your business in the long run.

CONCLUSION: There’s One Clear Winner

Even though you’re constantly busy as a restaurant owner, knowing your COGS and managing them is still the most crucial part of your business’s profits.

But it doesn’t have to take hours of your day.

And the tools you’re using to analyze and keep track of the market don’t have to be a ceiling-high stack of spreadsheets, or a disorganized Excel doc with more tabs than you can handle.

You’re also not helping your business flourish if you are blind to your market.

That’s why Orderly calculates your food costs for you.

The numbers you need to look at can be calculated at the touch of a button. All you have to do is snap photos of your invoices and updating your sales to Orderly.

You didn’t see the word “count” in there for a reason. You won’t have to do it anymore.

With add-ons like budget tools, and live analytics, you don’t have to spread yourself thin.

No more starting over, no more agonizing, and no more guessing.

Step back and take the load off your food cost management. Give yourself the time, space, and pay raise you deserve.

Danny BarryThe Three Ways to Calculate Your Food Costs

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