COGS Without Inventory

Tracking Cost of Goods Sold (COGS) is vital for any restaurant operation, yet many businesses face significant challenges when trying to stay on top of it. One of the biggest obstacles? Inventory.

The Inventory Challenge

Tracking COGS traditionally involves inventory management, but conducting regular inventory counts is labor-intensive and time-consuming. Even diligent operators typically perform a complete inventory once a month, which can take hours. Many restaurants, pressed for time and resources, perform inventory counts even less frequently. If you’re only calculating COGS based on monthly inventory, the data you receive is outdated by the time it reaches you—often weeks or even months later.

To make informed decisions, you need real-time data.

The Complex Solution: Real-Time Inventory

The complex solution to the COGS problem is to track inventory in real time. If you know the exact value of what’s on your shelves daily, you can calculate COGS daily and make immediate adjustments to stay on target.

However, real-time inventory systems come with significant challenges:

• Complicated Implementation: Setting up real-time inventory requires a massive upfront investment of time and resources. Every product, supplier, and menu item needs to be entered into the system accurately.
• Ongoing Maintenance: Real-time tracking isn’t a “set it and forget it” process. It requires continuous updates to account for new products, menu changes, price fluctuations, and more.
• High Costs: While there are excellent inventory management tools available, they can be expensive to implement and maintain.

For many restaurants, this complexity makes real-time inventory tracking an impractical solution.

The Simple Solution: Control COGS Without Inventory

Here’s the good news: you don’t need to rely on exhaustive inventory tracking to manage COGS effectively. By focusing on controlling purchases, you can achieve similar results without the headaches. In the short term, inventory matters. But over the long term, inventory fluctuations become negligible. If you manage your purchases strategically, you control your COGS.

Math to the Rescue

Let’s break it down with an example:

• A restaurant generates $10,000 in daily sales ($70,000 weekly).
• COGS is roughly 33% of sales, so in the rare situation that we do not make a single purchase in the week, the restaurant’s maximum weekly inventory fluctuates is $23,000

While inventory fluctuations do occur, their impact diminishes over time.

Impact of Inventory Variance on Sales

• 1 Week: $23K / $70K = 32% variance
• 4 Weeks: $23K / ($70K x 4) = 8% variance
• 52 Weeks: $23K / ($70K x 52) = 0.6% variance

The longer the timeframe, the less significant these variances become. Over time, inventory variances are dwarfed by overall sales, allowing you to ignore short-term fluctuations and focus on long-term profitability.

A Practical Approach

Instead of fixating on weekly inventory counts, create a weekly purchasing budget based on historical sales data. Track spending against this budget to keep your COGS on target. This simple, easy-to-implement method delivers results comparable to more complex and expensive systems.

Key Takeaways:

• Set a Weekly Budget: Base it on your sales and target COGS percentage.
• Track Spending: Monitor purchases to ensure they align with your budget.
• Conduct Periodic Inventories: Use them to spot operational issues, but don’t rely on them as your primary tool for managing COGS.

Conclusion

Managing COGS doesn’t have to be a time-consuming ordeal. By shifting your focus from inventory to purchases, you can achieve long-term profitability without the hassle of complex systems.

Keep it simple. Control your spending. Watch your profits grow.

BlackFox's Budgeting Tools: Built for 2025 and Beyond

At BlackFox, we’re developing new budgeting tools designed to streamline this process for restaurant operators of all sizes. Launching in 2025, our tools will provide your team with easy-to-use features that track spending against budgeted goals, offering you up-to-date insights without the need for extensive inventory management.

We’re excited to share more about this in our upcoming articles, so stay tuned! To get early access to insights, tips, and updates on our latest features, be sure to sign up for our newsletter.