The Importance of Basic Costing for Restaurants

Like any other business, the goal of every restaurant is to turn a profit at the end of the day. In order to understand how to make a profit, you must first understand what makes up the cost. By looking at the various costs involved in the operation of the restaurant and by understanding them you can make your restaurant a success. You need to understand these before you start looking for applications that will help you control your costs.

Recipe Costs

Food Costs

Labor Costs

Overhead Costs
The amount you spend on a recipe and how much it costs to serve a portion of that recipe. Recipe cost contributes to your overall food cost.The cost of all the edible ingredients that go into the food you serve to your diners. This is the sum total of your recipe costs and is important for keeping track of your profitability.Costs that includes salaries, benefits, and bonuses you pay your employees.Everything else that falls outside of food costs and labor, e.g. building rent, equipment, taxes, utilities, etc.
Profit vs. Costs
To calculate your profit you would take your total sales for a period and subtract all of your food, labor and overhead costs.

Understanding the Numbers

The key to a profitable business is managing your costs to ensure you have a healthy profit. There are tools to help you identify early in the process if you have food or labor cost issues. The sooner you are aware of these issues, the sooner you will be able to correct the problems and add to your profits.

  • The target for recipe costs should be in the 30% to 45% range of your selling price
  • Make sure your employees are following the recipes
  • Avoid overstocking or overproducing inventory
  • Make use of seasonal ingredients
  • Stretch the use of each Ingredient

The goal of any business is to make money. Keeping track of the costs involved with running your restaurant whether it’s food, labor, or overhead costs, will help you stay competitive and profitable.

Need tools to make your restaurant more profitable? Learn about PeachWorks's full feature Recipe App with built in costing and USDA nutritional reporting.

Why do I need to manage inventory?

How do you know if you are properly managing your inventory?  Do you have employees stealing? Do you have product that is going bad before you can use it? Studies show that restaurant managers do not reconcile inventory as often as they should, in some cases never. Mismanagement of inventory can be a costly mistake. Here are some tips to consider:

  • Your cost of goods sold, or COGS, is the single largest expense for your restaurant.
  • Your inventory is money on the shelf. You must control how much product you have on hand. The more product you have could lead to waste and theft.
  • Proper inventory management allows your customers to receive the freshest product which will ensure your customers return again and again.

What is the key to good inventory management? As a Manager, you must find the balance between having enough product and too much product on the shelves. It’s this balance that can be the difference between a successful or failing restaurant business. How do you know if you have inventory issues? Below are trends that should alert you that something just isn’t right:

  • The same person takes inventory every week or month.
  • Inventory is increasing month to month while your COGS are declining.
  • Your days of inventory is higher than 7 days for most products.
  • You have drastic decreases in your inventory while your COGS are increasing.
  • You consistently run out of product.

Keeping a closer eye on inventory and implementing inventory management process and tools will allow you to control your inventory loss.

Want to learn how to better manage your restaurant inventory? Check out the PeachWorks Inventory App to take all the guesswork out of inventory.  

Already using our Inventory App? Start adding items and get a better hold on your inventory today!

A handy overview on paying tipped employees

Understanding how to manage and pay tipped employees can be confusing - especially for folks opening a restaurant for the first time.  Here's a great guide we found that may help.

And as this points out, you'll probably want to to use a back-of-house system to tie your receipts or hours worked to each employee to ensure proper tax reporting.  We can help.

The benefits of a cloud POS are magnified by mobile back-of-house

Here's a nice article we saw highlighting the benefits of a cloud POS system (in this case, Revel, but we love Square, and Toast, and Breadcrumb, too) to restauranteurs.  We agree with all of that, but would also add that the real benefit is from having your data in the cloud.  Being able to take an order from your iPad in your living room isn't all that helpful.  But having the order data from your restaurant available in real-time (along with your inventory, checklists, etc.) combined with powerful reporting tools can really simplify your job.

That's why every Peach app is available 24/7 from your phone.  Because who hasn't wanted a real-time sales update while getting a haircut, or an alert about an employee approaching overtime while watching your daughter's ballet recital?

Cooking your raw POS data into valuable information - Part 2 (Coupons)

If you read Part 1 of this article, you learned how a great back-office system can turn data on voids into actionable information about a problem in your restaurant (and possibly a very expensive one!) In this part, we see what we can learn from coupon usage.

Everyone has coupons - whether in mailers, papers, mobile apps, or ones we just hand out, coupons are used as a marketing strategy to drive sales. So coupons are good. I always loved seeing coupons coming in; if marketing had placed them right it meant I was bringing in some new business, and maybe encouraging my repeat customers to start coming in a little more regularly. 

Although, coupons are good, there are a few things that you should always be aware of. You want to watch the overall percentage you are discounting by.  And if you are able watch for the percentage byserver, even better.  I know sounds paranoid, but using your reports will help you identify when coupon use might not be as valuable as you want it. 

True story time – major coupon drop, coupon percentage increased, "Hooray! We are making some good progress building sales!"  But hang on, my projected coupon usage was only supposed to be 3%, but I am running 5%. Time to put my Scooby Doo cap on again, and yep - coupons had been delivered to the restaurant, and my very generous front counter had been giving almost every customer a coupon for their meal. Not quite the intended purpose. 

I love discounts, and guess what?  So does everyone else.  Watching your discounts is going to very quickly help you identify when things may not be on the up and up. Remember Mary, our coleslaw girl.  As we learned last time, everyone loves Mary, who works 25 hours per week. If Mary gives away one BOGO (everyone loves a good BOGO Coupon) every hour for a $4.99 Burger, that is $125 per week, or nearly $6,300 in FREE FOOD every year….Ohhhh, Mary! 

Reports are just numbers, and you will only ever get value by diving more deeply into your data to really understand what's going on. And that means logical, clear reports that highlight just the data you need, with the ability to easily produce one-off custom reports to answer the questions raised when your standard reports pick up a whiff of a problem.  Does your back-office software do that?