5 Tips for Simplifying Your Cost of Goods Sold System
In this age of information, there is an unlimited amount of available data. Setting up a Cost of Goods Sold (COGS) system, can be both a blessing and a curse. With COGS being one of the largest expenses in the restaurant, tracking costs is of the utmost importance. The problem starts when people get stuck troubleshooting cost of goods across every single item; this requires a lot of time and effort. If the amount of effort needed exceeds the reduction of costs, then it loses value. Below are five tips on how to reduce information overload.
1) Narrow the Scope: Focus on items that drive the business. Don't get bogged down in the small details. When looking into which items to include, focus on high dollar, high velocity, or high contribution items. Is it really worth spending an hour looking into a $0.24 variance in kosher salt? After systems have been established for items that drive your business, other items can be added in.
2) Limit Input: Too many chefs spoil the soup. Have a few key people involved in the setup and decision making that will establish the standards that everyone else must adhere to going forward.
3) Establish Consistency: Once standards are set, ensure that they are consistent across the board. Take those standards, and work with the team to ensure those standards are adopted. If standards are not consistent, there will be an inundation of data variance.
4) Set Reasonable Thresholds: Once consistent standards are established, set reasonable thresholds for the metrics to be controlled, like usage variance and cost of goods sold percentages. Nothing is perfect, and employees shouldn't be held accountable to perfection. Tracking down issues takes time. Setting thresholds will ensure that it's worth having an employee take that time to find the issue.
5) Understand Outside Influences: Understand what's going on outside of the four walls that could be influencing COGS data. Has there been a drought causing the price of tomatoes to shoot up? Are oil prices rising, increasing food prices across the board? Are the Olympics happening causing people to stay home, reducing sales during that time frame? Understanding that these outside influences may contribute to increasing COGS will also reduce the amount of time spent looking internally for an issue.
Keeping costs under control is critical to a restaurant's profitability. With new technologies and endless sources of data, it may be tempting to dive in deep. But it can be easy to get in over your head and waste valuable time and resources on things that are not going to noticeably impact profits. Taking the time to define priorities and establish procedures will help ensure that everyone stays focused on what really matters for your business.
Jeremiah Anzelc is a former chef and restaurant manager. He has been a valuable member of Ctuit's Client Services department since 2011 as a restaurant industry adviser with an emphasis on implementing cost of goods sold practices to ensure efficiency and profitability.