(888) 598-5075
support@gettipshare.com

7 Tips to Improve Your Restaurant's Cost of Goods Sold

Created by Bradley Robinson in Margin Optimization 21 Mar 2023

Running a profitable restaurant involves managing a number of expenses, with the cost of goods sold (COGS) being one of the most significant. COGS refers to the cost of the ingredients and supplies used to make your dishes. By controlling your COGS, you can improve your restaurant's profitability. Here are seven tips for how to improve your COGS:


Pricing

Proper pricing is a crucial element in improving your restaurant's cost of goods sold (COGS), and there are several strategies you can implement to achieve this. One strategy is to participate in buying programs offered by suppliers. These programs can provide discounts and rebates for purchase volumes, allowing you to reduce your COGS and increase your profitability. However, it is essential to ensure that you are getting the rebates you are entitled to and that the program is genuinely beneficial to your business. By educating yourself on the program's details, you can make informed decisions and maximize the benefits of the program.

Another strategy is to implement effective pricing techniques, such as menu engineering. Menu engineering involves analyzing your menu items' popularity and profitability and strategically pricing them to increase sales and profits. For instance, you can use the anchor strategy by placing a high-priced menu item next to a more reasonably priced item to make it seem like a better value. The star strategy involves highlighting your most popular and profitable menu items, while the puzzle strategy involves grouping menu items in a way that encourages customers to spend more. The dog strategy involves removing underperforming menu items, while the workhorse strategy involves keeping popular but low-profit menu items that bring in steady sales.

In summary, proper pricing is a crucial element in improving your restaurant's cost of goods sold, and implementing effective pricing strategies can help you optimize your profits. Participating in buying programs from suppliers can also reduce your COGS and increase your profitability. However, it is essential to educate yourself on the program's details and ensure that you are getting the rebates you are entitled to. By implementing effective pricing techniques such as menu engineering, you can maximize sales and profits while staying competitive in the market.



Recipes


Properly following recipes and ensuring consistency in the creation of your products is a crucial element in improving your restaurant's cost of goods sold (COGS). One effective approach is to train your kitchen staff to follow standardized recipes accurately. This can help ensure consistency in the quality and quantity of ingredients used in your dishes, reducing waste and over-ordering of ingredients. Regular training sessions can also help your kitchen staff stay up-to-date with changes to your recipes and maintain consistency in the quality of your dishes.

Recipe management software is another tool that can help you maintain consistency in your recipes and track your ingredient usage. This can help you optimize your inventory, reduce waste, and adjust your menu pricing strategy accordingly. Recipe management software can also help you scale your recipes, making it easier to manage changes in ingredient prices and availability.

Building systems to follow recipes accurately is another very effective technique. For example, using precise measuring tools, establishing designated ingredient stations, and implementing quality assurance checks can all help your kitchen staff follow recipes consistently and accurately.

It is also crucial to train your kitchen staff to accurately cost out new menu items and calculate the food cost percentage (FCP). This can help you ensure that each menu item contributes to your profitability, allowing you to optimize your menu pricing strategy.

Following standardized recipes and ensuring consistency in the creation of your products is a crucial element in improving your restaurant's COGS. Training your kitchen staff, using recipe management software, building systems to follow recipes accurately, and calculating the FCP can all help reduce waste, optimize inventory, and increase profitability. By implementing these techniques, you can maintain consistency in the quality of your dishes and ensure that each menu item contributes to your restaurant's success.


Ordering

Effective ordering is critical to controlling your restaurant's cost of goods sold. Under-ordering can result in last-minute trips to the store to purchase items at a higher price, while over-ordering can lead to waste, spoilage, and increased COGS. To ensure that you are ordering effectively, it is essential to follow industry standards and best practices.

One of these industry standards is setting pars (par levels) for each item in your inventory. A par level is the minimum quantity of an item that you need to have on hand at all times to meet customer demand. Understanding your sales rhythm and adjusting your par levels accordingly can help you avoid over-ordering or under-ordering. This helps you maintain an optimal inventory level, reduce waste, and improve your profitability.

Another industry standard is using the first-in, first-out (FIFO) method to manage your inventory. FIFO means that you use the oldest items in your inventory first to avoid spoilage and waste. This method can help you optimize your inventory, reduce waste, and avoid unnecessary costs.

It is also essential to avoid reactive ordering, which is based on short-term needs or unexpected events. Reactive ordering can lead to over-ordering or under-ordering, which can result in waste, increased COGS, and reduced profitability.

Another industry standard is to avoid placing orders based solely on price without considering other factors like quality, reliability, or lead times. Placing orders based solely on price can lead to receiving subpar quality ingredients or products, which can negatively affect the quality of your dishes and customer satisfaction.

Effective ordering is critical to controlling your restaurant's COGS. Following industry standards and best practices like setting pars for each item, using the FIFO method to manage your inventory, and avoiding reactive ordering and placing orders based solely on price can help you optimize your inventory, reduce waste, and increase profitability. By implementing these industry standards, you can ensure the success of your restaurant and improve your profitability.


Prep

Preparing food ahead of time can help reduce prep time during peak hours and ensure that you have enough ingredients on hand to meet demand. This can help reduce food waste and minimize the need for last-minute orders at a higher price, both of which can affect your restaurant's cost of goods sold (COGS). By analyzing your sales data and anticipating which menu items will be popular, you can prepare ingredients in advance to save time and reduce waste. Establishing a prep list for each shift can help ensure that all necessary ingredients are prepared, and inventory is kept under control.

Another effective technique is portioning, which involves prepping ingredients in exact amounts to minimize waste and ensure consistent portion sizes. For example, you can portion out meats, vegetables, or sauces in exact quantities, rather than prepping large batches that may not be used up. This can help minimize waste, reduce COGS, and improve consistency in your dishes.

Proper storage and labeling of prepped ingredients is also essential to reduce food waste and ensure food safety. By using clear labels and storing ingredients in a logical and organized manner, you can avoid cross-contamination, spoilage, and waste.

In summary, preparing food ahead of time can help reduce food waste and minimize the need for last-minute orders at a higher price, improving your restaurant's cost of goods sold. Techniques like analyzing sales data, establishing prep lists, portioning, and proper storage and labeling can help you optimize your ingredient prep and inventory management, reduce waste, and increase profitability. By implementing these techniques, you can ensure the success of your restaurant and improve your profitability.


Discounts

Discounts and promotions can be an effective way to drive revenue and attract customers, but they can also negatively impact your restaurant's cost of goods sold (COGS). For example, offering a discount on a menu item may increase its popularity and lead to higher sales, but it can also decrease the profit margin on that item if the cost of the ingredients remains the same. Additionally, running promotions like "buy one, get one free" can increase the demand for certain menu items, potentially leading to increased waste if not properly accounted for.

To prevent surprises, it's crucial to track and account for any discounts or promotions being run. This includes factoring in the cost of the discounted or free items when calculating your COGS, as well as analyzing the impact of discounts on your overall profitability. While discounts and promotions can drive revenue in the short term, it's important to evaluate their long-term impact on your COGS and profitability.

Another way that discounts and promotions can impact your COGS is through supplier contracts. Some suppliers may offer discounts or rebates based on purchase volumes or other criteria, which can help lower your COGS. However, it's important to carefully review and negotiate these contracts to ensure that the terms are favorable and that you are actually benefiting from the discounts being offered. Otherwise, you may be stuck purchasing large quantities of ingredients that may not be used up, leading to increased waste and a negative impact on your COGS.

In summary, while discounts and promotions can be an effective way to drive revenue and attract customers, they can also negatively impact your restaurant's COGS if not properly accounted for. Tracking and accounting for discounts and promotions, as well as carefully reviewing supplier contracts, can help you optimize your COGS and improve your profitability.


Theft

Theft can be a significant issue for restaurants and can have a negative impact on your cost of goods sold (COGS). Whether it's employees stealing ingredients or customers taking condiments or other items, every instance of theft adds up and can ultimately impact your profitability.

To minimize theft, it's important to establish strict inventory control procedures and train your staff to be vigilant and report any suspicious behavior. This includes implementing security measures like locks and alarms on storage areas, and limiting access to inventory items. Conducting regular inventory counts and reconciling them with your tracking tools can also help identify discrepancies and issues that may be impacting your COGS.

Installing cameras and point-of-sale systems can also help deter theft and catch offenders. Cameras can provide visual evidence of theft, while point-of-sale systems can help you track sales and inventory in real-time, allowing you to quickly identify any discrepancies or issues.

Another effective way to minimize theft and improve your COGS is through portion control. By portioning out ingredients in exact quantities and limiting access to them, you can reduce the risk of theft and ensure consistent portion sizes, minimizing waste and improving consistency in your dishes.

In summary, theft can have a negative impact on your restaurant's COGS and profitability. By establishing strict inventory control procedures, training your staff to be vigilant, and implementing security measures like cameras and point-of-sale systems, you can minimize theft and improve your profitability. Additionally, portion control can help minimize waste and improve consistency in your dishes, further optimizing your COGS.



Inventory


Having accurate inventory counts is crucial for managing your restaurant's cost of goods sold (COGS). By keeping track of your inventory levels, you can avoid over-ordering or under-ordering ingredients, which can lead to waste or last-minute purchases at a higher price. It can also help you identify any issues with theft or spoilage, which can have a negative impact on your COGS.

Conducting regular physical inventories and reconciling them with your point-of-sale system or other inventory tracking tools can help you identify any discrepancies or issues that may be impacting your COGS. This includes comparing your inventory levels to your sales data, identifying slow-moving or stagnant inventory items, and reviewing any fluctuations in your inventory levels.

Accurate inventory counts can also help you identify trends in your purchasing and consumption habits, allowing you to optimize your ordering and inventory management processes. This includes identifying items that are frequently out of stock or overstocked, and adjusting your ordering practices accordingly.

To ensure that your inventory counts are accurate, it's important to establish clear inventory control procedures and train your staff on how to conduct inventory counts and reconcile them with your tracking tools. This includes establishing par levels for each ingredient, tracking expiration dates and shelf life, and regularly reviewing and updating your inventory tracking tools.

In summary, accurate inventory counts are crucial for managing your restaurant's COGS and optimizing your ordering and inventory management processes. By conducting regular physical inventories, reconciling them with your tracking tools, and establishing clear inventory control procedures, you can minimize waste, avoid under-ordering or over-ordering, and identify any issues that may be impacting your COGS.


Conclusion

Managing your COGS is a crucial aspect of running a profitable restaurant. By carefully monitoring and optimizing pricing, recipes, ordering, prep, discounts, theft, and inventory, you can reduce costs and increase profits. Implementing these strategies is an ongoing process that requires attention to detail and the right tools.

If you're struggling with managing your COGS, Tipshare is a great resource to help you get it under control. The platform provides a curated list of the top margin optimization tools on the market, a community of experts willing to assist you with managing your COGS, and online courses that can help you learn strategies around COGS management.

By taking advantage of these resources, you can optimize your restaurant's operations and increase profitability. So, head over to Tipshare and take the first step toward managing your COGS more effectively!

GDPR

When you visit any of our websites, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and manage your preferences. Please note, that blocking some types of cookies may impact your experience of the site and the services we are able to offer.