Only purchase what you know you’re going to sell to avoid wasting money on COGS that will ultimately spoil.
Look at sales reports and calculate how much food supplies you need to meet demand. Assure that you’re only purchasing the food supplies that you know you can sell over a given time period. You don’t know how much inventory and food supplies you need unless you closely monitor each menu item’s sell-through. Here are six actionable ways to lower your cost of goods sold:ġ. No matter what type of establishment you operate, it’s in your best interest to find ways to lower your COGS without sacrificing food quality and jeopardizing customer satisfaction. The lower your cost of goods sold, the higher your restaurant’s profit margins will be.
Selling a dish that cost you $5 to make that you charge $15 for (33.3% COGS) will bring in $10, but a higher end dish that costs you $25 in inventory but you can charge $50 for (50% COGS) will still bring you more money at the end of the day. It is possible for items to have a higher COGS percentage but bank more money, so it’s important to also look at the dollar amount each item is bringing in. However, for restaurants, there are a lot of factors that go into this including how labor-intensive your items are, how much you are able to charge for them, your location and rent, and more. So you’ve calculated your COGS, now what can you do with this number? Some say the ideal cost of goods sold percentage is around 30-40%. What this number means for your restaurant Johnny’s Burger Bar’s COGS for the month of February-the amount of money they spent on the food and drink that they served during that month-was $4,500. They ended February with $500 worth of food inventory.
That leftover inventory included ground beef, drinks, buns, garnishes and vegetables (any ingredients needed to make the food they serve).ĭuring the month of February, they had to restock and buy $2,000 worth of food inventory. They had $3,000 of leftover inventory from January (this is beginning inventory since they’re starting the new time period with it). Let’s say Johnny’s Burger Bar wants to find their COGS for the month of February. To find your COGS for a given time period, add the value of your beginning inventory and purchased inventory and subtract the value of your ending inventory from the result. Once you have those three values, you can calculate COGS. Ending inventory: Once you get to the end of your time period, you calculate the monetary value of the inventory you have leftover.Purchased inventory: This is the monetary value of the inventory purchases you make for the upcoming time period.Beginning inventory: This is the monetary value of the inventory you have leftover from the previous period (day, week, month or year).To calculate COGS, you need the following three values for a given time period:
#Cogs business how to
How to calculate cost of goods sold for restaurants Your COGS for the same item is likely to fluctuate from week-to-week, month-to-month and year-to-year, that’s why it’s important to routinely monitor it and assure that the price you charge for that menu item leaves you with enough profit, or whether you need to increase it’s menu price to compensate for fluctuations in COGS. Since the cost of produce fluctuates from one season to another, so will your COGS. Your COGS, along with other restaurant expenses like labor, utility bills and other overhead expenses, is subtracted from your gross revenue to determine your net profit. For restaurants, cost of goods sold is the total cost of all the ingredients used to make menu items, right down to the garnishes and condiments.Īs a general rule, roughly one-third of a restaurant’s gross revenue goes towards paying for COGS.