Why Managing Your Restaurant's Cost of Goods Sold in Real Time is Key to Profitability

Why Managing Your Restaurant's Cost of Goods Sold in Real Time is Key to Profitability
Manage cost of goods in real time

In the restaurant business, Cost of Goods Sold (COGS) is one of the most critical metrics. Managing COGS effectively can mean the difference between a thriving operation and one struggling to break even. Even a couple of percentage points up or down can significantly impact your bottom line, so having a clear handle on these costs is essential.

Most restaurant operators understand the importance of keeping COGS in check, but the real question is: How do you manage it effectively?

The Traditional COGS Calculation – And Its Limitations

Traditionally, restaurant managers take inventory monthly, though more proactive operators do it weekly. This inventory data is used to create a profit and loss report, detailing COGS for the previous financial period. This is like having a speedometer in your car that tells you your speed five minutes ago – by the time you get the information, it’s too late to make real-time adjustments.

In this tough industry, delayed data can be costly. What restaurant owners need is a “COGS speedometer” that provides real-time insights into what’s happening so they can make adjustments immediately.

Real-Time Inventory Management: A Potential Solution

One way to achieve real-time COGS insights is by implementing an inventory management system that tracks COGS as sales are made. When you sell a cheeseburger, the software automatically deducts the hamburger patty, cheese, bun, lettuce, and tomato from your inventory, providing an up-to-date snapshot of your COGS.

Modern inventory management systems can certainly do this, but they come with significant overhead. Beyond the high cost of the system itself, there are operational complexities involved, including:

  • Recipe management: All menu items need to be inputted with exact ingredients, and each recipe must be kept current.
  • Product updates: New products need to be entered, and prices updated regularly.
  • Daily inventory counts: While real-time tracking sounds convenient, it requires consistent inventory counts to ensure accuracy.
  • Vendor management: Each supplier needs to be linked and maintained within the system.
  • Invoice entry: Every order must be tracked with invoices entered in detail.

These tasks add up quickly, creating more daily responsibilities for you and your team. For larger restaurant operations, the investment might be worth the return. But for smaller establishments or those with limited resources, it can be a lot to manage.

A Simpler Approach to Managing COGS: Weekly Budgeting

If a comprehensive real-time inventory system isn’t feasible, there is a simpler, effective approach: use a budgeting method to control spending. The idea is straightforward – control spending, and you control COGS.

By setting a weekly or monthly budget, you empower your managers with clear spending targets that can guide their ordering decisions. Here’s why a budgeting system works so well:

  • Ease of implementation: Budgets require minimal setup and no complicated inventory systems.
  • Reduced labor: There’s no need for daily inventory counts or extensive system management.
  • Timely data: Budgets allow for quick, actionable insights refreshed on a daily or weekly basis.

While a weekly budget may not provide the same precision as a real-time inventory system, it offers close results without the added complexity. Your managers can focus on their day-to-day operations while keeping spending in check, which is ultimately what drives lower COGS.

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.

Read more