Why knowing your Cost of Sale is important, and how to calculate it.
In any business there is a cost to every sale, and in the world of Food and Beverage this one aspect of your business can make all the difference!
Businesses rise and fall on the ‘cost of sale’. Cafes, bars, restaurants, tea-rooms, hotels and school cafeterias are all slaves to these 3 little words. But how do you accurately measure and monitor it?
It’s a reasonably simple formula…
Opening stock + purchases – closing stock = cost of sales
Stocktakes. Often overlooked or rushed as it’s such a time consuming job, it is imperative that stocktakes are completed diligently and regularly – at least once a month (ideally on the last day of each month).
It is important that they are done the same way every time, otherwise the stock numbers will vary due to differences in measurement – not necessarily differences in stock levels!
A proper stocktake is not done by following a stock list and running around the store room trying to find items in alphabetical order. Instead, I suggest you methodically visit every location where stock is kept – in the same order, every time. Be it in a refrigerator, cupboard, freezer or the owner’s office, always start top left and work your way down to bottom right, thus ensuring that everything gets counted.
If you encounter anything that is not on your stock list (and in the beginning you will) add it as a new item and then count it again next month.
Opened containers should be weighed or judged to be part full (½, ¼ etc). Processed or partially processed articles (ie soup, stock, mashed potatoes) should be priced out by their recipe, so that you know what the true stock cost of 10 litres of Leek and Potato soup actually is.
Key tip: Use the same system every time.
If you have a really good accounting and point of sale system and software it will make your life much easier.
Deliveries need to be brought into your stock system in a timely fashion so that you eliminate timing issues (this occurs when stock has been physically counted in a stocktake, but not yet included as a purchase in the system).
Software can also help in maintaining the correct purchase cost (which affects the cost of sale) in the stock list.
Key tip: Paper stock lists are a thing of the past, a tablet and some smart software is all you need.
If at all possible, empower your department Heads (Head Chef, Bar Manager, Restaurant Manager etc) to be responsible for the stocktake in their respective departments.
Set up a defined stocktake programme and ensure your management team are aware of the expectation it will be completed by an agreed time. This information can then get fed into your accounting system and provide critical data for your monthly business financial reports.
It is up to you to spot check/audit the different stocktakes. When results are not what’s expected, you need to investigate and find out why. In my experience, changing to weekly or even daily stocktakes will soon help to identify what is occurring.
All in all, it may sound easy but measuring and controlling the cost of sale in your hospitality business requires good systems and discipline. If done correctly, it is one of the essential tools required to help a business achieve consistent profitably in an increasingly competitive world.
If you want to discuss any of the issues that might be arising in your hospitality business with Louis, Beany clients can contact him at email@example.com or call 0800 755 333. This is an amazing opportunity to talk to one of NZ’s most experienced hospitality operators and receive business advice from a true industry leader.