Do You Count? Why You Deserve Data to Increase Profit
3 Min Read By Bill Jones
It’s no secret that the most critical metric for any restaurant owner to optimize their food cost is cost of goods sold (COGS). However, counting inventory and applying most recent pricing makes it extremely difficult to calculate an accurate COGS. So much so that 60 percent of small restaurant owners do not consistently take inventory, which means they run blind to the most important metric, their profitability.
This time-consuming and error-prone process is made even more challenging with ever-changing ingredient prices, complimentary meals and waste, inaccurate counts, etc. Simply said, COGS is the most important metric for restaurateurs to consistently evaluate how well or how poorly their operation is running.
The Inventory Headache
Data science can be the difference between restaurant owners closing their doors or thriving and growing their business.
Since counting inventory and calculating food cost are such a headache, most operators choose to only count inventory monthly, a cadence that does not line up with the fast-paced nature of restaurant operations. Operators are placing and receiving orders every two to three days, if not more. They’re making decisions daily regarding orders, items to promote, specials, etc., so checking inventory monthly does not provide enough data to be efficient in the fast-paced restaurant world.
Even if a restaurateur does count inventory weekly, there is a certain amount of estimation that goes into every count. Not to mention that this is an extremely time-consuming method with a 10-20 percent margin for human error.
Even if a solution is being used to help reduce error, some require manually inputted ingredient lists in order to even begin streamlining the process of counting inventory and calculating COGS. A process that can take about four hours a week, which doesn’t save the restaurant owner time or money.
Data Accuracy Done Right
How can restaurateurs count inventory and determine cost of goods sold without a significant time commitment and the frustration? This is where choosing a food management solution driven by data science comes into play, as it empowers owners with the metrics to optimize their food cost and drive up profits. Key benefits of an innovative data-driven approach include:
- Accurate Food Cost: Most restaurants have 400-1,000 ingredients. We’ve seen that counting every one, often on a late night or super early morning, is both hated by the staff and is so mind-numbing, the counts are often hurried, made up or inaccurate. You can check this by just checking the number of “negative usage” counts. The ingredients don’t just grow on the shelf by themselves, so either your latest count was wrong or the one before it. Bad info into an equation produces an erroneous result. Data-driven solutions don’t make counting mistakes.
- Weekly Food Cost:Counting all ingredients is such an onerous activity, if restaurants do it, they do it monthly only. That means they get an update of their key metric to profitability only 12 times a year. That is inadequate. Most restaurants run on a weekly cadence, so knowing your food cost weekly enables important course-correction opportunities, and these more frequent actions keep more money in the coffers of the restaurant.
- Metrics to Negotiate with Suppliers:By relying on data, he-said she-said situations are eliminated. Data science gives restaurant owners the ability to compare their costs to the industry benchmarks for each specific ingredient in real time and empowers them in conversations with suppliers. Keeping track of continuously changing ingredient prices important, and data-driven software solutions give owners that visibility.
- Optimize COGS: It requires more than just a simple sales-to-spend ratio for restaurateurs to evaluate the standing of their business. Data science gives owners the opportunity to improve their food cost by eliminating inaccurate counts and incorrect data, while providing additional data points through quick, weekly inventory counts.
Operating with tight profit margins, how well a restaurant manages their food cost often determines the success or failure for the business. Restaurant owners should not have to go through an extensive process to determine COGS by counting every ingredient, updating their pricing and maintaining an up-to-date ingredient list. With a large percentage of restaurants failing to keep track of these key metrics, data science can be the difference between restaurant owners closing their doors or thriving and growing their business.