Digging Deeper into Restaurant C.O.G.S. – Cost of Goods Sold
Savvy operators know that the devil is in the details—especially with financial management. When you pull apart your cost of goods and sales figures, you can gain valuable insights into your most and least profitable menu categories and items. Then, you can take action to promote the best and minimise or remove the least profitable, significantly affecting your restaurant’s COGS and profit margin.
The Power of Detailed Cost Analysis
A simple example shows why cost-checking matters:
SALES TYPE
SALES $
COST $
COST %
Food Sales
$20,000
$5000
25%
Beverage Sales
$10,000
$3500
35%
Total Sales
$30,000
$8500
28.3%
This cafe has weekly sales of $30,000 and a Cost of Goods Sold (COGS) of $8500 (28.3%) – it looks like a good result.
But when you separate the sales and the COGS into food costs and sales and beverage costs and sales, you find that food costs are better and beverage costs are worse. Already, we’ve identified weaknesses. What looked like a healthy overall cost percentage hides a significant difference between food and beverage costs. Now, you can focus on the area that needs the most work: beverages.
Comparing Restaurant COGS and Sales
To gain the most insights, you need to categorise your sales and costs in detail. Here’s how you might categorise different types of sales, with the corresponding costs:
Sales by Category
Costs to Make the Sale
Food Sales
Food Purchases Bakery – Bread, cakes, cookies Fruit & Vegetables Meat, Poultry & Seafood Packaging for serving food Supermarket Purchases Consumables – foil, plastic wrap etc
Tea & Coffee Sales
Tea and Coffee Purchases Packaging for Tea & Coffee Milk for Tea & Coffee
Other Beverage Sales – fresh juices, smoothies
Fruit, milk and products used for these
Packaging for takeaway drinks
Other Beverages – soft drinks, bottles etc
Packaged Beverages Purchases
Alcohol Beverage Sales
Alcohol Beverage Purchases
Mixers, soft drinks & fruit for beverages
Retail Merchandise Sales
Retail Merchandise Purchases
By tracking your sales and costs with this level of detail, you can match specific sales categories with their associated costs and identify high-margin vs. low-margin items. You’re also watching cost sub-categories week by week, like packaging, proteins, and even supermarket purchases. These items are now under the spotlight instead of being lost in a single broad category called COGS.
To gain this level of scrutiny, you may need to reorganise your bookkeeping Chart of Accounts – when that’s done, you’re set for some serious cost reduction. Bookkeepers without a solid understanding of hospitality will often lump all the costs under one COGS category, but you can see the value of dividing them up. Your bookkeeping reports (when set up properly) will indicate many of these sales/cost comparisons, and sometimes you also need to do some manual calculations (or with a spreadsheet) to double-check the details. Thanks to our colleagues at FC Accounting Co. for helping with this analysis.
The Importance of Recipe Costing for Restaurant COGS
While understanding broad categories is important, your profits are built one recipe at a time, so individual recipe costing is essential. This allows you to have:
– Accurate pricing: Set prices that ensure profitability while remaining competitive. – Menu optimisation: Identify your most and least profitable dishes. – Waste reduction: See the ingredients driving up costs. – Consistent quality: Standard recipes ensure consistent costs and quality.
Let’s look at how you might break down the cost of a simple chicken pasta dish:
This level of detail gives essential information for making business decisions. But how can you implement this kind of costing across your entire menu?
How to Set Up Recipe Costing
– Start small: Begin with your most popular dishes or ones you suspect have higher than normal costs. – Use technology: Invest in recipe costing software to streamline the process. – Update regularly: Review and update costs at least quarterly to account for market changes – this should be handled weekly. – Train your team: Make sure your kitchen staff follows standard recipes.
Implementing this level of detail may meet resistance, and it’s important to give chefs support to set it up correctly and keep it updated. Having one person as the designated Recipe Controller is a good idea, and this probably shouldn’t be the head chef, who’s too busy for this type of detailed input.
Technology can significantly ease the process of recipe and menu cost management. It could be done with the built-in system of your POS system or with a special Inventory management system like Restoke or Loaded. Simple recipe costing software like CookKeepBook or Fillet offers cloud-based systems that can be used on a phone, tablet, or laptop and are much more flexible than spreadsheets.
Action Steps for More Control
Detailed analysis of costs through categorisation and individual recipe costing is a powerful way to boost profits and identify problems in your menu mix. Audit your current tracking and bookkeeping system – does it compare like with like? For example, does it compare the sales of hot beverages with the cost of making and selling those beverages? Does it separate packaging for takeaway tea and coffee?
– Start costing recipes and traditionally high-cost categories, such as meat, seafood, and proteins. Finding the true cost of each recipe can yield quick wins, and some items will need to be increased in price or removed from the menu. – Set up weekly cost of goods updates, especially for volatile items like vegetables. – Review your findings every week. As the team at FC Accounting Co has seen many times, operators who track their costs weekly have better profit margins and fewer surprises. – Invest in a cloud-based inventory and purchasing system that will give you accurate figures daily, automatically import your invoice details, and flag purchases with unexpected price increases.
Savvy operators know that the devil is in the details—especially with financial management. When you pull apart your cost of goods and sales figures, you can gain valuable insights into your most and least profitable menu categories and items. Then, you can take action to promote the best and minimise or remove the least profitable, significantly affecting your restaurant’s COGS and profit margin.
The Power of Detailed Cost Analysis
A simple example shows why cost-checking matters:
This cafe has weekly sales of $30,000 and a Cost of Goods Sold (COGS) of $8500 (28.3%) – it looks like a good result.
But when you separate the sales and the COGS into food costs and sales and beverage costs and sales, you find that food costs are better and beverage costs are worse. Already, we’ve identified weaknesses. What looked like a healthy overall cost percentage hides a significant difference between food and beverage costs. Now, you can focus on the area that needs the most work: beverages.
Comparing Restaurant COGS and Sales
To gain the most insights, you need to categorise your sales and costs in detail. Here’s how you might categorise different types of sales, with the corresponding costs:
Bakery – Bread, cakes, cookies
Fruit & Vegetables
Meat, Poultry & Seafood
Packaging for serving food
Supermarket Purchases
Consumables – foil, plastic wrap etc
Packaging for Tea & Coffee
Milk for Tea & Coffee
By tracking your sales and costs with this level of detail, you can match specific sales categories with their associated costs and identify high-margin vs. low-margin items. You’re also watching cost sub-categories week by week, like packaging, proteins, and even supermarket purchases. These items are now under the spotlight instead of being lost in a single broad category called COGS.
To gain this level of scrutiny, you may need to reorganise your bookkeeping Chart of Accounts – when that’s done, you’re set for some serious cost reduction. Bookkeepers without a solid understanding of hospitality will often lump all the costs under one COGS category, but you can see the value of dividing them up. Your bookkeeping reports (when set up properly) will indicate many of these sales/cost comparisons, and sometimes you also need to do some manual calculations (or with a spreadsheet) to double-check the details. Thanks to our colleagues at FC Accounting Co. for helping with this analysis.
The Importance of Recipe Costing for Restaurant COGS
While understanding broad categories is important, your profits are built one recipe at a time, so individual recipe costing is essential. This allows you to have:
– Accurate pricing: Set prices that ensure profitability while remaining competitive.
– Menu optimisation: Identify your most and least profitable dishes.
– Waste reduction: See the ingredients driving up costs.
– Consistent quality: Standard recipes ensure consistent costs and quality.
Let’s look at how you might break down the cost of a simple chicken pasta dish:
Recipe Breakdown: Chicken Pasta
Selling Price: $19.50
Gross Profit per dish: $15.31
Food Cost Percentage: 21.5%
This level of detail gives essential information for making business decisions. But how can you implement this kind of costing across your entire menu?
How to Set Up Recipe Costing
– Start small: Begin with your most popular dishes or ones you suspect have higher than normal costs.
– Use technology: Invest in recipe costing software to streamline the process.
– Update regularly: Review and update costs at least quarterly to account for market changes – this should be handled weekly.
– Train your team: Make sure your kitchen staff follows standard recipes.
Implementing this level of detail may meet resistance, and it’s important to give chefs support to set it up correctly and keep it updated. Having one person as the designated Recipe Controller is a good idea, and this probably shouldn’t be the head chef, who’s too busy for this type of detailed input.
Technology can significantly ease the process of recipe and menu cost management. It could be done with the built-in system of your POS system or with a special Inventory management system like Restoke or Loaded. Simple recipe costing software like CookKeepBook or Fillet offers cloud-based systems that can be used on a phone, tablet, or laptop and are much more flexible than spreadsheets.
Action Steps for More Control
Detailed analysis of costs through categorisation and individual recipe costing is a powerful way to boost profits and identify problems in your menu mix. Audit your current tracking and bookkeeping system – does it compare like with like? For example, does it compare the sales of hot beverages with the cost of making and selling those beverages? Does it separate packaging for takeaway tea and coffee?
– Start costing recipes and traditionally high-cost categories, such as meat, seafood, and proteins. Finding the true cost of each recipe can yield quick wins, and some items will need to be increased in price or removed from the menu.
– Set up weekly cost of goods updates, especially for volatile items like vegetables.
– Review your findings every week. As the team at FC Accounting Co has seen many times, operators who track their costs weekly have better profit margins and fewer surprises.
– Invest in a cloud-based inventory and purchasing system that will give you accurate figures daily, automatically import your invoice details, and flag purchases with unexpected price increases.
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