[This week we welcome guest poster Paul Sofsky. Paul is the CEO and founder of Orca Inventory. For 20 years, he has worked directly with some of the most profitable restaurants in California. CAKE now integrates directly with Orca Inventory on CAKE Market. Click here to learn more.]
I have helped over 120 restaurants thrive using one simple strategy: Flow. Correctly controlling the flow of inventory, ordering, and receiving increases a restaurant’s profit margin by at least 50%.
The best part of “flow” is that it’s so easy. There are only 3 reasons for unnecessarily high costs in this business. If you control these 3 factors, your profits will improve just as mine have.
Stock the Right Amount
Ordering too much of a product is tantamount to spending yourself out of profit. Capital is wasted on goods that spoil, and you see no return on your investment. Even goods that keep for a long time take up valuable storage space. Facilities become disorganized and cluttered resulting in an overall decrease in efficiency. If the process of taking inventory breaks down, you might even run out of products you actually need.
Ordering too little of a product is just as damaging. It is unacceptable to list a menu item that you cannot produce at a patron’s request. This can result in poor customer retention.
Plan Realistic Recipes
If your recipe cost is too high, you will never make a profit. Keep track of how much every dish costs your business. If the prices of ingredients change, make sure to update those recipes accordingly. You’ll need a margin of error here – no restaurant operates perfectly on a daily basis. Factor in the costs of staffing, operations, and incidentals, so you have a cushion even as the market changes. Don’t be afraid to change the price of a menu item if it keeps you in the black.
Track & Manage Your Product Loss
Most importantly, high costs are caused by loss. Some call it theft, over-portioning, or waste. I call it bad management. A restaurant should take a full inventory on the same day each week – I recommend Monday mornings. This allows the operator to see the actual food cost so they can calculate revenue and profits. Even more importantly, it paints a clear picture of which products are simply disappearing. Tracking these losses helps you determine why they occur in the first place, and prevents them from happening again. Remember, the amount of product loss in dollars you have converts to 5 times that in missed revenue. A $100 in lost product costs you on average $500 in missed revenue. Simple math can show me that when I factor prime cost, facilities, insurance, COGS, and payroll, the easiest way to almost doubling my profits is to control loss.