Profit is in the DETAIL!

The Profit is in the Detail – The Cornerstones of a profitable Restaurant

Well too often we will see owners and managers look at the numbers in their restaurant with rose colored glasses. Not paying attention to the true value of their food cost and labor; instead they are looking at variations of that information.  There are large differences between food usage and purchases and the gap between the two. What is an acceptable variance and how can you trouble shoot costly issues?

Food Usage and Units per 1K in sales (UPK)

Do you know how much of each of your products you are using per $1000.00 in sales? If you don’t it’s not hard to figure out, but depending on the system you have for your point of sale (register if old school) you might have some work to do. But in the long run it will pay off dramatically.  I highly suggest reach out to us at our website if the information below on UPKs seems foreign to you.

How to calculate your UPK?

(Inventory Usage / by sales) x $1000

Inventory Usage is Starting Inventory + Purchases – Ending Inventory

The UPK is a great tool to help you audit inventory from week to week as well as placing truck orders. If you are aware of how much you use per $1000 in sales, you can adjust for slower or busier weeks that will be affected by holidays and large events.  The main reason to utilize UPKs is to ensure when auditing inventory usage, it gives you a way to compare apples to apples regardless of sales.  For example, if your usage per thousand of fries is 15-16lbs then regardless of overall sales you can see where your inventory should be. If you have a week where your usage increased to 25lbs and there are no large orders or specials to account for it you can audit and be certain either you were shorted from your truck, there was a theft issue or there is a large waste issue.

Being aware of what your usage counts are per thousand dollars allows you to better understand trends and better trouble shoot cost issues.  If you go through and have the UPKs for your entire inventory (at least your top 50% cost items) you can adjust based on projected sales.  Are you going into a slower week that usually sees a 20% dip in sales or an event that increases sales by 20%?  Having your UPKs allows you to control the inventory ordered in either direction with information and not an educated guess.

Food Purchases versus Usage

Now that you know what your usage is you can calculate the total dollar amount of what you are ordering by item, category and total.  Its great if your usage cost is controlled, but too often we see locations with high purchase costs that don’t match the usage.  What good is running a 25% usage cost for four weeks straight if your purchase cost is 30%? That means you are wasting 5% of your product each week at the cost of your bottom line/profits.

That is why knowing what your UPKs are allows you to compare what you are spending versus what you are using and trouble shoot.  Knowing that you have a discrepancy in beef patties (burgers) versus “you are spending too much” allows you to audit and coach the issue at hand.  Knowing where to look, helps us manage the situation and find the root cause of the issue, minimizing the overall headache of the food cost issue.

By calculating usage, you can compare like items; what are your beverage costs versus your beverage usages? If you are spending $1,500 in beverages a week and only using $1,000 where is the extra $500 going each week?  If you simply know or feel that you are spending too much without the data at hand it becomes hard to trouble shoot the issue.

Labor – Where are you wasting it, and where do you need it?

One of the hardest parts of labor in the service industry is that fact that you need to invest your labor into your business effectively.  We understand that you cannot run extremely high labor hoping to increase sales through operations because labor needs to be controlled. But you can take the time to increase the labor on strategic shifts that have the most potential to grow and work from there as you invest labor.   Finding an effective way to invest labor in your business until it takes affect and then reinvesting it into a different area is how you can control costs, increase operations and increase profits in a controlled manner.

If you are inconsistently getting hit on Thursdays for lunch and Fridays for dinner, taking the time to carry extra labor on those shifts until it becomes consistent is a great way to invest back into your company.  Blindly increasing your labor on all shifts may be a good idea (in fantasy), but it will lead to frustration and profit declines very quickly.  Controlling the investment to the two shifts that have the most promise allows you to maximize your investment.  Once the investment starts to level off and the labor lowers (from you increasing it) you can reinvest it into the next two shifts that show promise.

Increasing profits

Increasing your profits is about maximizing operations overall while efficiently investing back into your business for the best return on investment.  Throwing money at the problem will only get you so far; controlling costs and challenging your team to improve will allow you to grow your brand, profits and operations.  A great tool (to be revisited later) is tying your managers to the bottom line with a bonus program.  If your managers have metrics they have to meet (labor, food cost issues, etc.) and are tied to the profitability of the store it challenges them to maximize the stores profits.  It becomes more than a job and a way of life that can improve their income on a daily basis with immediate pay off and not a hope for a raise down the road.

Remember when you are looking to grow your brand/restaurant you need to make sure you are inspecting what you expect.  If you aren’t measuring it, how can you expect to audit it and control it?  Being able to have the proper information to audit and control allows you to manage the bottom line of your company more effectively.

If all of these items give you a headache, or you don’t know where to start, reach out to our team today at our website and set up a phone consultation to see where and how we can help you master the art of restaurant cost control.

Solutions for your Restaurant - Maximizing your investments
Solutions for your Restaurant – Maximizing your investments

Leave a Reply

Your email address will not be published. Required fields are marked *