Profit margin can be used as a tool for pricing, and as a measurement of production efficiency. 

• As a pricing tool, profit margin can be used to reverse engineer the right price to sell a dish at. That is, you start with your expenses and desired profit, and from those numbers you calculate what the sale price of the dish should be. Let’s say you know it costs $5 to make a breaded chicken entrée, and you want to make at least $9 dollars in profit on the dish. Adding these numbers together, you can see that the minimum the dish can be sold for is $14.
• As an instrument for cost control, you can set a goal for a given level of profit from your operations. Say you want to clear 15% profit after all expenses are accounted for. You can then use this number to see the maximum allowable production expenses for a given level of sales. Say you have a busy restaurant that averages $10,000 in sales per night. If you want to maintain a 15% profit margin, then you cannot allow costs to exceed $8,500 per day. (10,000 * ((100 – 15)/100) = 8,500)

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Restaurant Profit Margin Calculator: Benefits and Use

The restaurant profit margin calculator replaces manual procedures for determining your profit margin. The calculator takes your business data and performs the necessary computation to arrive at the margin of profit. Using this calculator is the best approach to how to calculate profit margin in a restaurant.

Understanding Profit Margin

Profit margin is fundamentally a measure of how much money the business makes above its costs, expressed as a percentage. You can think of profit margin as the remainder after all expenses have been accounted for. For 100 dollars of revenue, say that 90 dollars are consumed by expenses (labor, food costs, overhead). The remaining 10 dollars is the profit, and your profit margin is 10 out of 100, or 10 percent. That’s how to calculate profit margin.

Profit come in different varieties: gross and net. It’s helpful to think about these definitions in terms of the sale of a single dish at a restaurant. Gross profit is your sale price minus the cost of the ingredients. Net profit is the sale price minus all expenses, such as labor, utilities, rent and ingredients. Net profit measures the income that can potentially be distributed to owners.

Factors Affecting Profit Margin

To fully understand restaurant profit margin, it’s critical to know the most common sources of expenses. In restaurants the most important expenses are known as “the big three”. These are labor, cost of goods sold (COGS), and overhead. Roughly speaking, each of the big three expenses consume a third of the expense total. So, labor is 33% of your expenses, and so on. Each big three category presents the opportunity for cost reduction and optimization. Can you more strategically allocate shifts to exactly meet demand? Can you change suppliers to reduce your ingredient costs? Can you negotiate with your landlord for a better deal on rent?

RELATED: How Do Small Business Restaurants Make a Profit?

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How to Use a Profit Margin Calculator

To calculate your restaurant profit margin, simply input your restaurant revenue, labor costs, cost of goods, and other expenses – then click Calculate Profit Margin! Once calculated, you’ll see your restaurant profit margin for both gross and net profit.

Tips for Improving Profit Margins

There are two approaches to a better profit margin—increase sales and reduce expenses. Increasing sales is the most effective of two methods, so we’ll examine it in detail. You can increase sales in a number of ways: engage in menu engineering, increase table turnover, add tables, and increase upsells. 

• Menu engineering is the process of examining the menu for opportunities to increase sales and reduce costs. This is done by creating more popular dishes using favorite ingredients and favorite types of preparation, to increase sales. Then to reduce costs, you remove unpopular items from the menu, which allows you to stock less inventory, thereby reducing your food costs. 
• Table turnover can be increased by using technology to process orders from servers and transmit them to the kitchen via a kitchen display monitor. Additionally, you can train your waitstaff to regularly check in on customers, and (without pressuring) swiftly deliver bills once guests are ready to depart.
• Adding tables is one of the easiest ways to increase sales. Review your table layout and see if there’s space for extra tables, a counter service/bar area, or additional seats at existing tables.
• Upsells are items added to the customers order. Beverages, appetizers, and deserts are the most common upsells. Train your staff to ask customers if they want these items, and encourage your servers to recommend their favorite appetizers, deserts, and drinks. Because they have the highest profit margin on the menu, alcoholic drinks are a particularly potent upsell.

The post Profit Margin Calculator: Understanding and Improving Restaurant Profit Margins appeared first on Restaurant Accounting Services, Inc..

A produce order guide is the ultimate money saver, and it’ll ultimately benefit your customers and your bottom line. With a little up-front planning and timely purchasing, you’ll immediately notice an improvement with ingredient utilization and optimization. 

While we’re known for our world class restaurant accounting solutions, RASI also knows a thing or two about day-to-day restaurant processes. With this online produce ordering for restaurants, you can maximize your leverage with suppliers and producers. Buyers Edge Platform also has its own division for produce management. Visit BEP today to learn more about their services that help ensure safe handling, storage, and usage of produce products. 

Why Proper Produce Ordering is Essential

Accurate, on-point produce ordering is vitally important in order for your restaurant to make tasty, memorable meals for your customers. Here are a few reasons why it helps to follow a sustainable, flexible restaurant produce order guide:

• Increased order speed
• Proper designation and quantities for seasonal-specific ingredients
• Reduced order errors
• On-the-fly adjustments are easy to implement for seasonal items and special promo entrees
• Seamless process – easy for someone to fill in and order produce without missing a beat (or beets, if that’s your thing)
• Optimal ROI and less kitchen waste
• Enhanced menu engineering
• And many more

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Tips for Ordering Produce

The core of any efficient produce order guide starts with ordering produce at the best possible price for your restaurant kitchen, along with optimal freshness and storage time. Follow these simple steps, and you’re well on your way to adhering to an easy-to-follow restaurant produce order guide:

Assess your needs.

Along with your regular go-to, staple menu items, stay ahead of the curve for seasonal favorites and upcoming new entrees & appetizers. For example, your produce ordering requirements in April might differ substantially from your September produce purchases.

Finding Reliable Suppliers

In other words, find a vendor management strategy that works for you. Check out RASI’s helpful article on this subject for invaluable tips. Vendor management is a critical component of every well-run online produce ordering system for restaurants.

Understanding Lead Times and Special Orders

We touched on this earlier, but it’s hard to stress the importance of anticipating bulk orders, special produce purchases, and the like. There’s a bit of trial & error in play here, especially for less experienced chefs & kitchen managers, but once you build a reliable supplier network, it’s easier to handle this tricky task. Should you buy in bulk now? How does my produce inventory impact my balance sheet? These and other questions are answered by controlling the cost of goods (COGs) for your eatery.

Quality Control and Food Safety

Produce freshness depends on impeccable quality control and food safety measures. For your restaurant produce order guidelines, this means:

Thorough Delivery Inspection

• Never just accept a produce delivery without a cut-no-corners inspection. Always check for proper firmness, color, and aroma.

Storing Produce Properly

• To get the most out of your produce order guidelines, ensure you have a clearly defined produce storage plan in place. 

Preventing Cross-Contamination

• Pay attention to cross-contamination with your produce. For example, never store fresh produce next to meat, dairy, and other non-produce ingredients.

Optimizing Produce Usage and Minimizing Waste

Want to produce the best results for your restaurant produce? Try these tips: 

Reduce Over-Ordering

• This goes along with our previous point about anticipating seasonal ingredient trends and similar special circumstances. Another helpful aspect of limiting over-ordering and having too much produce on hand? Get on a regular, reliable schedule with trusted partners & suppliers.

Implement Creative Ways to Use Excess Produce

• When you have some extra produce on hand, a great way to ensure it’s used before expiration is to add a new menu item (or more) to utilize soon-to-expire ingredients.

Donating Excess Produce

• If your menu is already at full capacity and it’s not feasible to create new menu entries, donating to local food bank is always a good idea.

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RASI: The Ultimate Solution for Produce Ordering, Accounting & More 

From online produce ordering & management for restaurants on the Buyers Edge Platform to accounting services and more, RASI & Buyers Edge Platform will help your BOH restaurant system run more efficiently. We offer everything from tax & compliance help, balance sheet optimization, multi-unit inventory expertise, and much more.

Request a demo today or call us directly at (720) 826-9900. Thanks for visiting RASI – we look forward to hearing from you soon!

The post Restaurant Produce Ordering Guide appeared first on Restaurant Accounting Services, Inc..

Are you up to speed on the latest restaurant food storage guidelines? Master this tactic, and you’ll be amazed at how everything from profit margins to customer satisfaction improves.

While we’re often asked about how to implement efficient restaurant accounting solutions, RASI also fields operational queries such as how to store produce. As a result, we produced this restaurant produce storage guide to ensure your kitchen has the knowledge to reduce waste, save money, and optimize your menu engineering process.

 WATCH THE FULL VIDEO BELOW!

The Importance of Proper Produce Storage in a Restaurant

Aside from the obvious cost-saving benefits of using your produce to its maximum storage limit for freshness, there’s another advantage many restaurant managers don’t realize right away: the avoidance of fines and penalties from local, state or regional health department inspections. For example, OSHA has dozens of state-approved food safety plans, and some can levy thousands of dollars worth of fines if these plans are ignored.

The Buyers Edge Platform offers a consistent and transparent managed produce program to the foodservice industry. While focusing on delivering competitive prices through fully audited networks – we also provide maximum visibility to our operator clients.

For this produce storage guide, let’s review some factors that impact freshness, along with some specific tips for efficient storage.

Factors that Affect Produce Freshness

The smallest mistakes in produce storage enables any of these factors to negatively impact the taste, texture, and freshness of your food:

• Temperature
• Humidity
• Airflow
• Ethylene gas
• Light

What is ethylene gas? Naturally released by plants, ethylene is a plant hormone that helps fruit and vegetables mature to full ripeness. It’s not the same in every plant, so it helps to store those ingredients that produce ethylene separate from any food sensitive to the gas.

Understanding ethylene helps you extend the shelf life of your fruits and vegetables – and, by extension, improve your food cost management. The first thing you need to know is plants’ ethylene productions and sensitivities are not universal. So, you should store ethylene producers separate from ethylene-sensitive items. Some fruits and vegetables that produce the highest amounts of ethylene include bananas, avocados, peaches, pears, and apples.

Our recommendation — find out which of your restaurant’s ingredients produce ethylene, and establish your own rules with an internal restaurant produce storage guide everyone can access.

The Buyers Edge Platform can also help: their licensed food safety teams deploy Buyers Edge’s technology to manage food safety audits, recalls, and alerts. Buyers Edge makes sure that everything regarding food safety is taken care of.

Specific Produce Storage Tips

Here are some common produce items, with ideal storage temps and other info. These tips will help optimize the cost of goods (COGS) for your restaurant budget.

• Leafy Greens – store at 32° F for up to 3 weeks
• Root Vegetables – store at 32°-40°, max storage time varies depending on vegetable
• Citrus Fruits — store at 38°-55°, max storage depends on type of fruit
• Apples — store at 30°-35° for up to 8 weeks
• Berries — store at 30°-35° for up to 2 weeks, depending on initial ripeness
• Tomatoes — store at 43°-52° for up to 1 week
• Onions — store at 32 up to 6 weeks
• Potatoes — store at 40°-50° for up to 3 months

Best Practices for Produce Storage

Here are four things you can do right now to improve your produce storage methods:

• Properly label and date all produce.
• Ensure food storage containers are completely closed.
• Rotate produce in your storage area to ensure the freshest ingredients are always available for your menu.
• Watch out for cross-contamination between different ingredients; for example, never store produce in direct contact with meat, dairy, and other non-produce food.

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Produce Storage Guide: Tips for Selecting High-Quality Produce

A critical aspect of any produce storage guide is how to select the freshest, tastiest produce. While the specific characteristics for each ingredient different slightly, these actions can be applied to any type of food you’re purchasing:

• Purchase in season. If possible, buy your produce when it’s in season. This ensures healthier, cheaper, and fresher ingredients.
• Try a local farmer’s market. For your next fruit & vegetable haul, go to a farmer’s market. Many successful restaurants use this tip as the #1 priority for their restaurant produce storage guide. Many times, optimal storage results from purchasing the best ingredients local to your restaurant.
• Find a reliable supplier. If farmer’s markets aren’t a viable option, it helps to establish a solid relationship with a produce supplier. Check out RASI’s Partner Hub and browse some potential options today!

Use these strategies, and your produce storage methods will run smoothly – and help your overall kitchen operate more efficiently, too! Thanks for checking out our restaurant produce storage guide. For additional guidance with your restaurant accounting tasks, schedule a demo or call us today at (720) 826-9900.

The post Restaurant Produce Storage Guide appeared first on Restaurant Accounting Services, Inc..

What’s the one key ingredient – figuratively speaking – of your restaurant’s ultimate success? Some restaurant or bar owners think it’s all about location, location, location. Others may lean toward a loyal customer base. And don’t forget about seasonal swings and capitalizing on the “perfect timing” aspect of sales.

All valid “ingredients,” for sure. But have you considered the importance of menu pricing as a key driver of revenue and profit? Think about it this way: whatever type of eatery you run (restaurant, bar, catering service, food truck, etc.), day-in, day-out purchases off your menu are the most consistent source of income. And finding the right balance to offer customer value and optimal profit is critical to a profitable enterprise.

Pricing a menu impacts your restaurant well beyond the daily, weekly, and monthly books. Without a sound, sustainable menu pricing formula in place, it’s virtually impossible to ensure other sectors of your business are funded, including everything from utilities, labor, real estate, food stock levels, and much more.

RASI’s complete line of accounting services, including intuitive analytical applications, gives your restaurant a distinct advantage in all phases of pricing a menu, from conception to implementation. Let’s get into some specifics of restaurant menu pricing, including a key distinction with menu engineering.

Fundamentals of Pricing a Menu

Finding the right menu prices isn’t done by accident or on a whim. The most successful restaurant owners know it’s all in the details – namely, profit margins, food cost percentage, current market conditions, the competition, and more.

Keep in mind, menu pricing is much different than menu engineering. While menu pricing deals with finding the best possible menu costs, menu engineering is a true nuts & bolts exercise. Seasonal sales swings, vendor pricing, supply costs, you name it – menu engineering is more or less the “algorithm” of smart pricing strategies. Make sure you check out our informative article on menu engineering for some more in-depth analysis on the subject.

When figuring out your menu pricing formula, or even when engineering your menu, it’s helpful to keep in mind the relationship between costs and profit margins, especially in the wake of skyrocketing inflation: when costs increase, margins decrease. There’s simply no way around this inverse, dynamic relationship.

But back to the menu pricing formula…what are some ways to set your restaurant menu pricing?

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Restaurant Menu Pricing Based on Ideal Food Cost Percentage

Once you figure out your food cost percentage, you have the foundation in place to set a profitable menu. Food cost percentage takes two factors into consideration: 

• How much is spent on food ingredients
• How much revenue is generated from this expense

Simply divide the ingredient cost by the sales, and you have the ideal food cost percentage. Those two factors in the equation require four different inputs: starting inventory, food purchases, final inventory, and total food sales.

Let’s say your restaurant, Frank’s Lunch Box, has a starting inventory of $5,000. You made $8,000 in purchases. At the end of the year, your final inventory was $3,000. With total food sales of $30,000. Your food cost percentage would be:

(Starting inventory + food purchases) – final inventory / total food sales, or

(5,000 + 8,000) – 3,000 / 30,000, which is

10,000 / 30,000, or

33%

So, your ideal food cost percentage is 33%. For every one dollar of revenue, 33 cents were spent on food inventory. Lucky for your restaurant, that’s right in the “sweet spot” of food cost percentage. Most profitable establishments keep food costs anywhere from 25% to 35% of overall revenue.

Now, how does this factor into restaurant menu pricing? The ideal menu item price formula is:

Cost per serving / ideal food cost percentage

If Frank’s has a food cost percentage of, say 40%, and you’d like to decrease that to 25%, you need to reduce this factor by 15%. Let’s say Frank’s best-selling chicken sandwich is currently on the menu for $10.00, and costs your restaurant $4.00 per serving to make. That’s a 40% food cost percentage.

In order to get the food cost percentage down to 25%, let’s plug the numbers into the equation.

Cost per serving / ideal food cost percentage

$4.00 / 25% = $16.00. So, in order to get your food cost percentage to a more manageable 25%, you have to raise the price of the chicken sandwich from $10 to $16.

Gross profit margin and cost of goods (COGs) are also helpful factors when pricing a menu. Here are a few other things to keep in mind:

• Competition pricing. It’s always helpful to know what your competitors are charging for similar menu items. If price reductions or slight increases are required, we recommend slight modifications to separate your restaurant’s menu from the competition.
• Premium menu items. Market trends and fads are common in menu items. Take “gourmet” grilled cheese sandwiches, for example. Even when made with premium breads and gourmet cheeses, many restaurants can charge up to $20 for a sandwich, even though it only costs less than $5 to make!
• Pricing balance. Your entrée selections should have a “ballpark” range that’s not too drastic; most restaurants, for example, charge anywhere from $18 to $30 for main courses. If the range is too sharp — $5 sandwiches next to $25 salads – that will cut into your profits and may confuse diners…”does this restaurant know what they’re doing?”

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Contact RASI Today – To Learn More About Pricing Strategy for Restaurant Menus

Here’s a smart strategy – connect with our restaurant accounting experts today. Our powerful, agile restaurant accounting software gives you plenty of tools to help with menu pricing, not to mention multi-unit inventory, compliance, payroll, and much more.

Request a demo today, or call us directly at (720) 826-9900. 

The post Restaurant Menu Pricing: The Secret to Your Restaurant Success appeared first on Restaurant Accounting Services, Inc..

What is inventory management? How do successful restaurants manage inventory? Does your restaurant have a sound strategy for this critical restaurant to-do?

You have questions about restaurant inventory management…and RASI has the answers! Our restaurant accounting software, including a powerful inventory management application, helps restaurants just like yours keep track of product levels, incoming supplies, analyze food costs, and identify discrepancies with vendors, food items, and more.

Inventory management enables restaurants to track existing product levels (food, supplies, etc.), and also know when to reorder. And it’s certainly one of the more “tricky” aspects of day-to-day restaurant management. Managing restaurant inventory is the ultimate balancing act; your business requires a base level of ingredients and supplies to account for regular operations, but not too much.

Without a proper inventory tracking system, your restaurant could quickly run out of crucial menu ingredients; conversely, you also don’t want too much inventory taking up valuable interior space. Inventory management helps companies know how much product to order and when to order it. 

Inventory management can be accomplished with spreadsheets and manual counting. But inventory management software helps ease the process and more accurately count and track your products. Additionally, it can show important financial and performance data and re-order products when it reaches certain levels.

Here are a few inventory examples, and how NOT accurately accounting for stock levels could negatively impact business:

Perishables

Ingredients and menu items with a finite expiration date require accurate, timely, daily (sometimes, even hourly) tracking in order to fully optimize product levels. Every restaurant must properly account for perishables, whether it’s a food truck, catering service, or regular brick-and-mortar establishment. For perishables, how restaurants manage inventory is directly tied to having a good menu engineering system in place.

Available Storage Space

Food isn’t the only finite “ingredient” of your restaurant; space is also limited. Wasted space with too much (or even not enough) inventory brings down the operational efficiency of any eatery, and managing restaurant inventory the correct way allows you to properly utilize all available real estate.

Bulk Purchases

Another balancing act with managing restaurant inventory involves bulk purchases. At times, it may be advantageous to participate in a bulk purchase or manufacturer rebate program to save money. However, too many products purchased without regard to customer demand could take up valuable shelf space with minimal benefit to your operation. Throw in rampant inflation, and the equation is even more muddled. That’s why it’s more important than ever to have a robust, automated inventory platform working in your favor.

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How Do Restaurants Take & Manage Inventory?

How do restaurants manage inventory? It starts with a system for initial quality and cost assessment. While every restaurant has their own method of inventory management, 

Here are the top 4 things to look for in a restaurant inventory management system:

1) Does your restaurant inventory management system include count sheets? Key info includes quantity, price, cost, and fluctuations from previous inventory levels.

2) Does it have the ability to schematic your inventory sheet together? List all products and amounts. RASI’s recommended best practice is shelf-to-sheet count sheets.

3) Does it update the current price based off of the most recent purchases so your inventory reflects the most up-to-date pricing? 

4) Does it provide the ability to view and assign par-level inventory? “Par inventory” is the baseline quantity of every item that’s required for daily operations. This helps pinpoint the exact time you should order more inventory.

Benefits of Properly Managing Restaurant Inventory

Get your restaurant inventory management locked in, and your establishment will enjoy the following benefits:

• Optimal food usage. From perishable items to sporadic menu demand, inventory management best practices ensure less food waste.
• Managing supply chain impacts. Sound restaurant inventory management allows restaurants to lessen the impact of supply chain disruptions. Check out RASI’s article on this subject for more info.
• Better vendor management. Timing is everything in the restaurant, particularly with vendor payments & purchases. Effective inventory strategies enable businesses to capitalize on the best possible outcomes with these crucial commerce partners.
• Happier customers. Closely related to food utilization, this benefit stems directly from having on hand exactly what your restaurant needs – when you need it.
• Maximum ROI. Managing restaurant inventory is all about reducing waste, which positively impacts your bottom line.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Let RASI Assist With Your Restaurant Inventory Management Needs

If your inventory strategy needs refinement, or you’re looking to establish a restaurant inventory management program that’ll contribute to the best possible ROI, RASI can help today. Schedule a demo to see our agile, intuitive inventory platform at work. Or, call our experts today at (720) 826-9900. We look forward to hearing from you soon!

The post How do Successful Restaurants Manage Inventory? appeared first on Restaurant Accounting Services, Inc..

The Importance of Calculating Food Costs 

Every restaurant operator has a multitude of responsibilities. From profit optimization to menu engineering, there’s never a shortage of factors to contend with.

Thanks to recent spikes in inflation and rising costs, food cost percentage is suddenly back as a hot topic — and for good reason. By even the most conservative estimates, costs have spiked around 20% for some restaurants – even more in big cities, resort towns, and other high-demand establishments.

If your restaurant is struggling with keeping operations afloat while keeping pace with ever-increasing menu ingredients expenses, understanding how to calculate food costs is critical. Let’s take a look at the importance of food cost percentage, different variables that impact your overall cost structure, how to calculate food costs, and more.

How to Calculate Food Cost Percentage:

The food cost percentage formula is relatively simple…you’ll need to have the following inputs, all in dollar value, ready to go:

• Beginning Inventory: inventory you started the period with
• Purchases:  purchases made throughout the period
• Ending Inventory: inventory on hand (remaining) at the end of the period
• Total Food Sales: all food sales from the period

Take your numbers from the inputs above and put them in the food cost calculator below to find your food cost percentage!

Food Cost Percentage Calculator

Food Cost Percentage Example

The following example illustrates just how important it is for your restaurant to fully grasp how to calculate food cost and how a slight increase in percentage can negatively impact your entire restaurant operation.

A detailed look at your food cost percentage provides more accurate tracking and forecasts for your P&L statement. This insight also empowers your purchasing department to make the best decisions for entire menus and even single ingredients.

Example of calculating food cost:

For this purpose, suppose your restaurant serves 500 customers daily.

If the average customer spends $20, and you have an up-to-date & accurate assessment of costs via weekly purchase tracking and weekly inventory, you will be able to accurately calculate your food cost enabling you to seamlessly project restaurant cash flow & profits from your entire menu.

Now, what if your food cost percentage calculations are off by even 25 cents per customer, and you’re spending that much more on your ingredients? That’s an extra $125 per day – or in yearly terms, an extra $32,500!

Small changes, huge impact. You’d never purchase a lot of ovens or automatic dishwashers without having a complete understanding of the costs. Well, that’s the same with food cost percentage.

What’s more, if you dig into the details and pinpoint which ingredients fluctuate on a weekly or monthly basis, or are more likely subjected to inflation spikes, you can anticipate these increases and make more informed purchasing decisions. All to the benefit of your entire operation.

Benefits of Understanding Food Cost Percentage

In the restaurant industry, knowledge is power. And knowing how to calculate food costs and track percentages is, in many ways, somewhat of a superpower! Get your costs locked in, and your restaurant will enjoy:

• Superior menu engineering. From your go-to menu items to individual ingredients, it’s always better to have the most accurate expense information at hand. This allows you to deliver high-quality menu offerings to customers while keeping costs as low as possible.
• Higher revenue. With food cost percentages as low as possible, you’re better positioned to optimize profits – and as our example above showed, even the smallest advantage here pays big dividends to your bottom line.
• More efficient supplier/vendor relationships. Your vendors and suppliers are the lifeline to your business. Without a reliable and affordable stream of supplies – including one of our most critical supplies, food – running your business is impossible. Once you have a firm grasp of food cost percentage, you can leverage your partnerships with suppliers and other vendors more efficiently.
• Better forecasting & planning. Food cost percentages are constantly in flux. And while your restaurant can’t predict the future, you can still anticipate changes to costs down the road, if you understand where prices are today.
• Accurate weekly inventory calculations. Regular inventory counting (RASI recommends weekly tracking — and always on the same day/night) – not only helps with food cost percentage and gives you a clearer picture of your entire inventory dynamic, including storage area, equipment, and other assets. There are many reasons to count your inventory; food cost percentage is just one.

WATCH THE FULL VIDEO BELOW!

How to Improve Food Cost Percentage Tracking

Here are a few ways you can immediately improve your accuracy:

• Stay on top of industry trends – you’re better able to understand what’s driving food costs and develop innovative ways to save money with purchases.
• Get timely, intelligent data – RASI’s data analytics offer customized information directly related to what matters most to your restaurant.
• Track your past & current data – RASI offers everything from financial reporting to multi-unit inventory tracking to show you past & present food cost percentages.

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Wrapping Up

Take the next step with your food cost percentage data. Learn how to better calculate food costs with RASI’s complete restaurant accounting services. Schedule a demo now, or drop us a line – we’d love to help your restaurant optimize profits and lower costs today! Keep track of this critical expense category, and you better your chance of staying competitive – all while anticipating possible price hikes tomorrow.

RASI has a host of resources to assist you with weekly inventory and keeping food cost percentage fully in view, even while you concentrate on other crucial business tasks. Our tech-friendly analytical tools, accounting tools and other software applications allow you to manage even the most volatile business landscapes.

The post How to Calculate Food Cost appeared first on Restaurant Accounting Services, Inc..

Every well run organization starts at the top. Sometimes, managers are brought in from another restaurant. And more often than you think, regular employees are promoted to manager.

But which restaurant management skills separate the good leaders from the great ones? What’s more critical – organization or people skills? And what tools or resources can help enhance the most important restaurant manager skills?

RASI can assist with honing and improving restaurant management skills – particularly in the field of full-service accounting applications and other business-friendly tools. We’re here to help any restaurant manager round out their skill set with the best support structure around. Let’s look at some common restaurant manager attributes and skills, how to refine the skills needed for a restaurant manager, and more!

Essential Attributes of a Great Restaurant Manager

Here’s a handful of characteristics every manager needs – learn and master these, and you’re on your way to perfecting all the skills needed for a restaurant manager!

1. Decisiveness. From deciding on the right supplier to making the latest shift schedules, all restaurant managers need to be decisive – yet fair at the same time. “The buck stops here” is a quality all effective leaders share, and a restaurant manager is no different.
   
2. Flexibility. Nothing ever stays still in the restaurant industry. Unexpected lunch and dinner rushes, prompt call-offs, challenging supply issues – you name it, restaurant managers deal with it. The ability to adjust on the fly, all while remaining calm in the center of the storm, defines all the best managers.
3. Professionalism. Everyone in the restaurant looks up to the manager. By having an aura of professionalism and authority, it’s easier to handle day-to-day responsibilities. Lead effectively, and your employees will follow.
4. Empathy. Don’t let professionalism take away the human touch. From disgruntled employees to angry customers, it always helps to empathize with a particular point of view. Empathy helps with conflict resolution, inspiring your team, and much more!
5. Honesty. Be a straight shooter – with employees and customers. Act with integrity at all times, whether you’re managing the books or working on employee relationships.

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Critical Restaurant Management Skills

An effective restaurant manager is the ultimate jack of all trades. Like a time-honored recipe, or your menu’s most popular item, it takes the right ingredients to make it work. Applying those skills to everyday management tasks is a good start. Here are just some of the things a manager is responsible for:

• Labor management – including payroll, shift scheduling, and the like. And don’t forget retaining the top talent!
• Ensuring a smooth supply chain – even the best customer service won’t fix a kitchen without the tools to succeed.
• Menu costing and control
• Inventory management
• Customer service – handling complaints, PR, etc.
• Compliance – all managers set the tone with integrity. This is critical, especially with ever-changing compliance laws & regulations.
• Handle the books – P&L statements, data analysis, cash management and more.

Building a Support System for Restaurant Management Skills

Aside from hiring the right people, the skills needed for a restaurant manager don’t stop with human interaction. It helps to have a complete support system in place for things like POS integration, data analytics, accounting, payroll and more. The bad news? There’s no single master class to master all of these areas at once.

The good news? RASI empowers restaurant managers with everything necessary to help round out any management skill set! One of our core focal points is to ensure that our clients have access to the best education possible to learn operational and accounting best practices that allow you to set attainable and realistic goals, tactics, and measurements for your teams. Like every capable restaurant manager, our services are also flexible, adaptable, and people-friendly!

LISTEN TO THE FULL PODCAST EPISODE BELOW!

Request a demo today, or contact us to learn more! We’re here to help any restaurant manager win with the absolute best accounting platform you’ll find anywhere. 

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One of the most critical metrics to understand and track as a restaurant operator is your restaurant profit margin. Simply put, to remain in business, you need to understand your margins and everything that goes into them. This seemingly simple metric contains a fair bit of complexity under the hood.

The formula to calculate restaurant profit margin is as follows:

[(Revenue – Expenses) / Sales] x 100

The formula above represents your revenue minus your expenses in a given period, divided by your sales for that period. To understand your profit as a percentage of sales, multiply that number by one hundred.

It’s important to know there are two classifications of profit margins; gross and net. The difference comes from how you calculate your expenses. Gross profit deducts only your Cost of Goods (COGS), while net profit subtracts every type of expense you have.

Let’s break down the components of the formula for Net Profit Margin:

• Revenue: Your revenue is the total of your restaurant’s income streams, such as Dining Room, Bar, catering, merchandise/retail, and banquets/venue rentals.
• Expenses: Your expenses is all the money going out the door, like rent, payroll, food and beverage costs, and equipment depreciation or leasing cost.
• Sales: Your sales are pretty self-explanatory – the sum value of everything your guests purchased.

Average restaurant profits across the industry

Average restaurant profits across the industry vary; the range typically falls between 2%-6%. There is also variance within the industry: full-service restaurants usually fall on the lower end of the spectrum, while quick-service restaurants and food trucks will cluster higher. Wherever you sit in the profit margin range, you’ll need to run a tight ship to turn a regular profit. This comes with proactively managing your overhead, labor, and costs of goods. The first step to reliable profits is having accurate sales and costs figures, which are made markedly more accessible by using modern restaurant accounting software.

Restaurant break-even points

When discussing restaurant profit margin, it’s critical to also look at break-evens. When discussing restaurant profit margin, it’s critical to also look at break-evens. Understanding break-even points is one of the most reliable guideposts a restaurant operator can have in guiding more substantial margins. Break-evens indicate how much in sales you need to meet your fixed and variable costs, and they help create more precise budgets and accurate sales forecasts, improving the bottom line.

Break-evens fall into two categories:

• • Cash flow break-even: A cash flow break-even factors in your restaurant profitability plus your debt servicing, government assistance, and anything else that does not show up on your P&L but needs to be factored into your cash management strategy.

• Operational break-even: An operational break-even helps determine at what point your sales meet your complete operational expenses. How much do you need to make in sales to live to fight another day? This type of break-even will assist you in determining budgets, goals, and operational directives.

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How to make a restaurant more profitable

There are two ways that operators can improve their bottom line.

• Increase revenue relative to expenses
• Decrease costs relative to sales

How to increase revenue relative to expenses

Offer great bar programs and strive for high table turnover

To increase revenue, focus on growing each of your primary revenue streams, typically Dining Room, Bar, Catering, Merchandise/Retail, and Banquets/Venue Rentals. Dining room and bar sales are usually the most significant contributors, so pay special attention to them. Firstly, looking at your bar, remember that margins on alcohol can reach 60%, making them by far the most profitable sales category. Lean into this advantage with appealing selections of wine, beer, and cocktails.

Your dining room profitability can be increased by making more money per customer or by increasing the number of customers served. For the latter goal, it’s key to establish a high table turnover rate. This means increasing the number of customers served in a given period by reducing the average time spent at tables.

Fast-casual restaurants have customers dine and dash at an advantageous pace. The more people you can serve over a given period of time, the higher your profit. A high turnover rate also compensates for limited real estate, allowing you to effectively fit more people in your space.

Engineer your menu and merchandise the menu items

You can also increase revenue by working with your chef to engineer a menu with more profitable dishes. Additionally, you can train your team to merchandise your menu items. Upselling, or merchandising your menu, is essentially training your team to understand menu items in relation to their contributing margins, just like engineering your menu is creating a menu that caters directly to contributing margins.

Drive repeat business

Driving repeat business is another time-tested strategy to increase sales. Your best customers are the ones you already have. They’ve already made the decision to patronize your business, so your customer acquisition cost (CAC) on repeat visits is near zero. Take advantage of that by cultivating a regular clientele. Positive word of mouth can be one of the most potent advertising tools you have, and as a bonus, it’s free! An additional way to create repeat business, especially if you’re a QSR, may be customized rewards programs that incentivize repeat purchases.

Master your online marketing

Lastly, in the age of the smartphone, having an online presence has gone from nice-to-have to need-to-have. Prospective customers will look for information about your restaurant online. They’ll want to see your menu, address, and hours of operation at a bare minimum. Have an up-to-date website and Google Business Profile listing. A well-managed website can become a business asset with multiple advantages, from digital marketing to online orders.

How to decrease costs revenue relative to sales

Know your metrics

Understanding your KPI’s (key performance indicators) is critical to cost savings for a restaurant operator. Without these clear and timely financial indicators, you’re flying blind and will be unable to take proactive steps to control costs. Receiving real-time updates on business-critical metrics will help guide your areas of opportunity to see where you can decrease costs. RASI’s business intelligence and data analytics empower our operators to take swift action on financial metrics, drill down into sales trends, and use machine learning to make accurate forecasts.

Control your prime costs (COGS & labor)

To decrease costs, you’ll need to get a handle on your principal cost drivers, i.e., your Prime Costs: labor and COGS. Prime costs can fluctuate greatly depending upon what’s happening around the globe. Commodity prices, staffing challenges, and consumer behavior can all affect your prime costs. Therefore, the more frequently you review your prime costs, the better. We recommend a weekly manager meeting to review P&Ls for this reason. If you consistently assess your data, you’ll be better equipped to make educated business decisions based on opportunities presented in your analyses. Here are 3 strategies to help control your prime costs:

• Review and forecast your labor to enable efficient staffing levels, then create your schedule accordingly. Additionally, another frequently overlooked cost savings method comes from payroll compliance. Substantial fees are levied on restaurants that don’t comply with the law on meal and rest breaks, overtime, and paid time off. These fees are easily avoided by conscientious management of your payroll.
• Take control of your inventory to reduce waste, theft, and spoilage, and optimize your menu to par dishes that don’t sell and create dishes with high perceived value (and built-in profit margins).
• Leverage relationships with your vendors to ensure you’re getting the best deals with constantly fluctuating prices or finding cost-effective sub-worthy items.

Review your financial statements regularly

Timely and accurate financials give operators the leverage needed to make necessary changes to their business. When you can view how your departments are performing relative to budget, how your sales are trending, and have the knowledge and understanding to forecast your primary cost directives accurately, you’re empowered to drive positive, consistent financial results. Every operator must become intimately familiar with their Profit and Loss Statement, Balance Sheet, and Statement of Cash Flow. Each of these measures is distinct, and each contributes a unique perspective on the overall health of your restaurant.

Other Ways to Make Money for Your Restaurant

Aside from obvious things like tracking profit margins, cash flow break-even analysis, and other accounting equations, there are a few creative ways to make extra money, even while handling the regular day-to-day tasks of running your restaurant.

1. Master the art of the upsell. Your customers are in your restaurant for a reason, and that’s especially true of your repeat, loyal patrons. We recommend you take a multi-level approach to upselling your restaurant’s extra products and services.

For example, servers handle the dining area to offer customers extra portions, exclusive sales, and the like.

Keep in mind, only the best-trained staff are equipped to deliver results with upselling appetizers, desserts, and specials – a great personality can only take you so far, if the requisite menu knowledge isn’t there.

Same goes true for the other “level” of your upsell platform (if you have one): the bar area. Alcohol upsells are a great way to increase profit with relative ease. Happy hours, seasonal cocktail specials and similar promos are tailor-made for your bar staff to upsell timely offers for bar patrons.

Make sure your staff prioritizes high-velocity, low-cost items to maximize profit. During special promos, serving staff should greet each table with a quick rundown of your restaurant’s current specials, with a particular emphasis on those top-selling menu items. Same goes for your bar staff; make sure you coach bartenders and other personnel to always mention drink specials, happy hour prices, and more.

2. Market your merch. And if you don’t already have a baseline of clothing and accessories, maybe it’s a great time to launch your own merchandise! Sure, there’s some up-front costs involved, but a well-promoted campaign will quickly dial up the profits.

If you already have t-shirts and hats, maybe try bottle openers and other small accessories to create another revenue stream. For any merchandise line, a certain degree of creativity is an absolute must! For example, merch is a great way to come up with a new slogan or tagline for your restaurant.

3. Create friendly competition. A great way to boost revenue is to have employee “contests,” with rewards for top-selling staff. As we mentioned above, promoting top-selling items aligns perfectly with periodic sales drives.

Gift cards, extra vacation and bonus pay are just a few ways to incentivize top-performing employees. It’s a win-win situation; they reap individual rewards, while your restaurant collectively makes more money.

4. Elevate your social media presence. It’s not necessary to become a worldwide-famous TikTok influencer to reap the benefits of an active social media account. Your customers (and potential customers) already know what they’re searching for, so just having something to say, whether it’s your latest special or an exclusive promo, is a good way to drive extra business to your establishment.

The best way to increase revenue with any social media app (Facebook, Instagram, Snapchat, etc.) is to create regular, topical content focused on what people would want to know…special deals, hours, location, you name it. Another tip: encourage your guests to leave positive reviews, as this definitely helps bring new customers through the door.

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The post How Do Small Business Restaurants Make a Profit? appeared first on Restaurant Accounting Services, Inc..

What is a Declining Budget?

A Declining Budget is used in the restaurant industry to help controllers and operators manage operational costs – more specifically, the relationship between sales (revenue) and the amount spent in relation to those sales. Ultimately a Declining Budget will support management in monitoring variable spending and fluctuating sales (revenue).

The two parts of a Declining Budget:

To grasp how we use a Declining Budget, we must first identify the two vital factors for its success: restaurant Sales (Revenue) and Product Pricing.

#1) Restaurant Sales (Revenue)

Factually, restaurant revenues are variable. Many restaurants obtain revenue from multiple revenue centers, with Dining Room, Bar, Catering, Banquets, and Retail as the most common.

Each week, the sales from these revenue centers can vary widely based upon seasonality, weather, holidays, sporting events, construction, and new competition.

#2) Product Pricing

Product pricing also fluctuates tremendously based upon seasonality, availability, purchase quantity, quality, and total purchases made with a specific vendor.

Added to the instability is that products have varying shelf lives (the length of time a product can remain on the shelf before it spoils). Shelf lives can range from one day for produce to indefinite for items such as paper supplies.

It’s easy to budget how much you’re going to spend (and ultimately make) when both the revenue you bring in and the product costs are static, but that’s simply not the nature of the game.

Examples of a Declining Budget: What NOT to do vs What TO do!

Our sales can easily decline for the last four weeks because of the weather, a big sports game, or the holiday season.

Example #1) What NOT to do:

• Monthly Sales Revenue:
  • WK 1 Sales: $20,000
  • WK 2 Sales: $17,000
  • WK 3 Sales: $15,000
  • WK 4 Sales: $14,500

Looking at the sales above, we’re $13,500 off in revenue from the 1st week through the 4th week ($20,000 – $14,500 = $13,500).

So, what happens if we spend the same amount of money buying our product each week, without actually knowing that we should reduce it based on the sales?

• Monthly Product Costs:
  • WK 1 Costs: $10,000
  • WK 2 Costs: $10,000
  • WK 3 Costs: $10,000
  • WK 4 Costs: $10,000

Total Product Costs = $40,000

• Monthly Cash Position:
  • WK 1 Cash: $20,000 sales – $10,000 product cost = $10,000
  • WK 2 Cash: $17,000 sales – $10,000 product cost = $7,000
  • WK 3 Cash: $15,000 sales – $10,000 product cost = $5,000
  • WK 4 Cash: $14,500 sales – $10,000 product cost = $4,500

Total Cash On Hand = $26,500

Total Cash On Hand $26,500 – Total Product Costs $40,000 = $13,500 of OVERSPENDING in one month.

Ultimately, using a Declining Budget gives you the ability to keep one eye on the fluctuation in your sales, and the other on how much you’ve spent IN RELATIONSHIP TO THOSE SALES. Thus, if used daily, supports keeping your variable spending in line with your fluctuating sales.

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Example #2) What TO do! A Declining Budget

In the example above, we’re stating the following:

How a Declining Budget actually works:

Each day, your sales are updated, and your purchases are recorded. The total purchases are summarized and subtracted against the forecast. The result is your available spend amount.

What happens when you spend more than your budget amount?

You shouldn’t spend over your limit. However, when you do, it typically means one of a few things:

• Is your revenue forecast accurate? Pay attention to your daily sales and make adjustments. Not doing so places your operation in a bind. For example, if you notice that your week is busier than usual, but you don’t adjust your spending accordingly, you may not order enough product to satisfy all of your hungry guests.
• Are your targets reasonable? Can you run a 33% food cost when you’ve been averaging 38%? It is vital to be realistic in your expectations. Targeting too low won’t allow you to spend enough on product to service your forecasted sales (even when they are accurate).
• Do you have the “Gallon of Gas Syndrome”? You’ve forecasted your revenue correctly, and you’re ordering the correct amount of product. However, you’re still overspending. The Gallon of Gas Syndrome simply means you can only go so far with what you have. Product prices are volatile, especially on produce, dairy, meat, and seafood. They change weekly. Thus, staying disciplined and following a Declining Budget enables you to notice pricing fluctuations on critical items. In turn, this allows you to work with your vendors proactively on procuring the highest quality products while sticking to your budget.

Note: A good rule of thumb is to forecast on Monday and make your adjustments on Thursday (prior to placing your weekend orders).

Get the basic Declining Budget template below!

Download a basic version of a restaurant Declining Budget below. It will get you started and give you a sense of what you need to start taking charge of your finances.

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