It’s easy to make money in the restaurant business. It’s very hard to keep any of that money after all expenses are paid. In the monthly workshops I run through the U.S. Small Business Administration’s SCORE (which oversees approximately 350 chapters of volunteers who provide free mentoring and counseling to entrepreneurs and small business owners), I work one-on-one or in groups with operators to make and keep their restaurants profitable. Too many times, I see them fail to use technology to run their kitchen operations and manage food costs. More often than not, they already have the technology they need. They either don’t know how to use it, or know that they should and fail to find the time.
Managing food cost is a first-tier problem. Many independent operators know it’s important to cost each dish they serve. The steps are straightforward; you need to:
- create an inventory list of each ingredient necessary to prepare all the dishes on their menu.
- identify the purchase unit (PU) and its cost
- break each PU down into the amount used per recipe, to determine a recipe unit (RU) and its associated cost.
- add up the cost of each ingredient to get to plate cost.
The plate cost allows you to mark up the item for a menu price. The menu price must cover the cost of each plate, plus labor, utilities, marketing, rent and other operating expenses, and hopefully, there is something left over for profit. The chances for profit are low unless you work through this process.
While you might expect anyone opening a restaurant to have a good understanding of these perfectly logical equations and their use, you would be wrong. Unfortunately, many do not know how to monitor or manage this vital information. I often come across clients who’ve arbitrarily slapped a $12.99 price on a menu item. They tell me it’s the most popular dish on the menu. Of course it is; it’s priced far below the same dish in any other restaurant in the area and they’re losing money with every order.
Enter cost per plate into your POS for every menu item.
The first advice I offer operators is to make sure each menu item is costed, as above, and that this information is entered into the POS system. Any first-tier POS should have the input fields for this information in its software; your POS support team should provide step-by-step input instructions.
Today there are over 100 POS systems to consider. Operators are overwhelmed not only by the wide choice of brands, but by the depth and breadth of the technology itself. They see the POS as an expensive piece of equipment, and it is: A start-up restaurant can expect to spend $15,000 to $20,000 for software, hardware, installation and training. Each POS terminal services about 30 seats in your restaurant, so depending on the size of your restaurant, you may need multiple terminals, at up to $5,000 apiece. But the sad part is, they fail to see that POS for what it is — the key piece of technology they need to get to profitability.
A POS system properly loaded with your per-plate data will deliver theoretical food cost — a profitability goal that in a perfect world without waste, theft, or spoilage, can be completely achieved. In the imperfect world in which we operate, we can get close enough to that ideal to still make profits, through the visibility afforded us through the POS and diligent management. (The POS system can also help manage costs and time spent in ordering and labor, but these are topics for another day.)
If you cannot measure it, you cannot manage it
***This is our latest contribution to Restaurant Technology Magazine. Look for more articles in the near future.