When evaluating the efficiency of your restaurant management team there are few better metrics to use than Cost of Sales and Cost per Cover.
Cost of sales is a great way to look at your food, beverage, and labor expenses (prime costs) to make sure you are operating efficiently. The ratio is calculated by dividing your food expense by your food sales. I have seen this percent range anywhere from 20% for a rooftop bar that sold empanadas to people as they mingled all the way up to 40% for a pub that the owner and chef were buying their groceries for home with the restaurant food purchases. Depending on the type of place you are operating your food cost should be anywhere from 25%-32% over the long term. Higher than 32% and you should start looking at where your food is going beyond the plates of your customers.
Beverage cost of sales is pretty standard at: Beer 18-22%, Liquor 15-18%, and wine 24-26% for efficiently run restaurants. Now don’t get me wrong there are ways to get costs even lower…you could offer your entire beverage list to one of the big distributors in town for a discount on pricing, or you could offer to pay your food vendors though ACH each Friday for the previous seven day’s delivery’s for a nice little price break. I have seen both methods knock 2-5% off the cost of sales per category.
Cost per cover (CPP) is a great way to measure the cost of straight up commodities that you use. Plastic film (kitchen supplies), paper towels (guest supplies), postage, and linen- any Direct Operating or General and Administrative costs are great to look at as cost per cover. Unlike the cost of sales mentioned above the object here is not a set number, but to keep driving that number lower. It is also a great way to look at year over year increases in expense and make sure that your cost are increasing because you are serving more people as opposed to loss of efficiency.
For example if your cost for paper towels in the bathrooms of you restaurant went up $10,000 between one year to the next but your cost per cover stayed at $.10 per cover you know that each guest is still using the same amount of paper towels each visit. Conversely, if your CPP goes from$.10 in year 1 up to $.25 in year two it might be time to find a new vendor and make sure the kid stocking the bathrooms at night is not selling paper towels on eBay on the side.
As an owner and manager of a restaurant, you have way to many balls in the air to also have to wonder what you should be focusing on financially as you run your business. Cost of sales and Cost Per Cover are two excellent metrics to monitor as they tell you how efficiently your business is running and for cost of sales there are excellent industry benchmarks available for you to compare your establishment and management team to others in your field.
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Tim O’Rourke – http://orderupprofits.com/
Tim@orderupprofits.com / 847-894-1056
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