Trying to wrap your head around all the moving parts in your restaurant, can feel overwhelming. You eliminate this by putting systems in place to ease your busy mind. These systems help you to control your costs and identify areas you need to improve on. Where these systems are most important, are in evaluating prime costs. I call your prime costs a “beast”, because it is. Prime costs consist of Cost of Goods (COGs) and Labor. Your prime costs eat up 60-70% of your total revenue. Not only having these systems in place, but the right systems in place, is critical to being in the black. Many people I have talked to have told me, “Well Seth, I monitor labor every week, do a monthly inventory, and made sure my menu was costed properly, but I’m still losing money.”
As I dive into evaluating their prime costs, I notice a common theme. These systems are lacking the proper detail to make the necessary adjustments. When establishing these systems, detail is everything. When you are hemorrhaging away your profits at a rapid rate, finding and fixing the issue as soon as possible, reduces the damage done to your bottom line.
Let’s talk about Cost of Goods first. It is important to remember that costing your menu properly is only the start of this process. Everything from ordering to end use plays a role in your margins.
Here’s a list of questions I have for you:
- Are you checking your invoices on a daily basis to ensure pricing and quality?
- Do you have an efficient and proper rotation system in plaWant to add a caption to this image? Click the Settings icon.ce when you receive new product?
- What is your sales to inventory ratio?
- Do you have a system in place for Loss Prevention?
- Are you tracking waste daily?
- Are you relying on only one vendor for your food purchases?
- How are you monitoring and managing portion control?u
- How often do you change/evaluate your menu?
These certainly are not all the questions that need to be asked, but certainly they are a good start. The reason I have asked these questions is simple, they give the detail needed for the cost savings solutions.
The first step is when your product arrives on premises. Making sure the quality of product meets the standards you want for your guests. This ensures there is no waste of product after you have accepted the shipment. Checking for pricing is self explanatory, but I can’t tell you how many times this gets overlooked.
Rotation of stock is imperative to reducing spoilage and giving the guest the freshest ingredients possible.
Finding the proper amount of inventory on hand directly affects cost of goods in so many ways. I could write an entire article about why this important, but here are the bullet points:
- Reduction of spoilage and waste.
- Reduction in theft of product.
- Increase your cash flow. Better inventory management increases liquidity.
- Improving efficiency in counting weekly inventory.
Inventory should be based on revenue only! I don’t care if you have additional space or can get a great deal on mass quantities. You can also reduce inventory by increasing delivery drops at your location.
Ensure systems are in place for Loss Prevention. I’m not only talking about product. Theft of any kind can will effect your prime costs for obvious reasons.
Tracking your waste on a daily basis can be a quick reference to where the problem lays in your food costs. Are you over prepping a certain item and then throwing it out? Are you getting the same menu items sent back to the kitchen with dissatisfaction from the guests only to make them something different at your cost? Do you have a certain item that seems to spoil on a regular basis? Having a daily waste log can give you these answers. Not only will it give you the answer, but it will stick out like a sore thumb. You can address this issue in a timely manner.
I have heard arguments on both sides for working with only one vendor for food product. I personally believe having multiple options is the way to go. I believe competition to be a good thing. This keeps everyone honest, and it gives you more options for solutions. Most vendors will offer you a percentage rebate if you give them the bulk of your business. This can be a good thing, you must do your due diligence to ensure you are receiving competitive pricing.
Portion control is a food cost’s best friend. Having a proper system in place leads to better food costs, but better labor costs as well. Having pre-portioned product and portion specific utensils saves time and waste. Ensuring proper portions will allow you to properly cost your menu. I see a lot of owners and operators only concentrate on the big money items such as proteins or cheeses. While this is key, this leaves the bulk of your menu unmonitored and leads to an increase in food cost percentage.
I suggest changing and evaluating your menu every three to four months. Not only do your guests enjoy this, it gives them something to look forward to and helps retain guests in a competitive market. Your food costs will benefit as well. We deal with commodities while building our menus. As you know, they go up and down with the market. While there can be a spike in price, most often price fluctuations can be predicted. For example, if you are beef heavy on your menu and you anticipate an increase in beef prices, you can make adjustments to your menu before prices surge. It also can help identify what items on your menu are not moving at the rate you need them to carry an efficient inventory.
All these factors and details is what you need to manage your COGs and ultimately your prime cost. In part 2 we will discuss the other half, which is labor. And you guessed it, the devil is in the details.