In today’s economic climate, especially post COVID-19 scenario restaurant businesses are bound to get impacted adversely. Thousands of restaurants across the world will be shut down . So only restaurants which are operating on healthy business practices will survive since it will become the survival of the best.
Making your restaurant successful does not happen overnight and it requires lots of hard work and consistent efforts over a period of time. So it is the right time to have a close look at your business and do an introspection and evaluate if you are destined for success.
So Foodcoach is coming up with 8 Matrices that could be crucial for the health of your business. These matrices will give an indication if your business is doing well or not and also will highlight areas which needs to be improved. The most important part of the process is to have the data ready with the management to calculate these matrices.
8 OPERATIONAL MATRICES TO STREAMLINE THE OPERATION
1. COST OF GOODS SOLD
Cost of Goods Sold or Food cost as it is commonly called is the cost incurred in procuring the raw materials required to produce food over a period of time. This is the most important variable cost ,which means it fluctuates with the business volume.
Cost of Goods Sold or Food cost as it is commonly called is the cost incurred in procuring the raw materials required to produce food . This is the most important variable cost ,which means it fluctuates with the business volume. COGS is generally monitored over a period like a month.
HOW TO CALCULATE COGS
COGS( Cost of Goods Sold )= Opening Inventory+Purchases -Closing Inventory
COGS %= COGS/ Total Sales x 100
2. INVENTORY TURNOVER RATIO
Inventory is a complete list of raw materials in stock. An effective inventory management is essential for a profitable business. Holding up too much stock will effect the cash flow of the business. The following points are important for an effective inventory management.
1). An accurate list of what you have available to use.
2). An accurate assessment of how much you will use on a daily or weekly basis.
3). A means to be able to track this usage for accuracy
4). A quick and effective method of re-ordering or restocking your inventory.
While it is quite possible to list and track all of this information manually, it is far more efficient and effective if an electronic inventory management system is put into use.
HOW TO CALCULATE INVENTORY TURNOVER RATIO
It is calculated by dividing COGS with an average inventory for that period.
INVENTORY TURNOVER RATIO= COGS/(OPENING INVENTORY+ CLOSING INVENTORY)/2
3.BREAK EVEN POINT
Break Even Point is a point where the total costs and total sales are equal. It is a point of no profit or no loss. It is very important for the restaurant management to know the Break Even Point for their business for operating for a certain period of time. To calculate the Break Even Point, the following figures are required. Normally this is obtained from historic data.
FIXED COST= SUM OF ALL EXPENSES THAT WILL BE INCURRED IRRESPECTIVE OF ANY BUSINESS IS DONE OR NOT.
Eg; Rent, Mortgage, Interest on loan, utility charges like electricity, Salary of permanent staff, Insurance premium, license fees.
VARIABLE COST= This includes Food cost ( this is the major cost ), salary when used in times of additional demand, consumables like cleaning chemicals, certain utilities like water, cooking gas.
CONTRIBUTION MARGIN= Total Sales- Total Variable cost
CONTRIBUTION MARGIN RATIO= Contribution Margin / Total Sales
HOW TO CALCULATE BREAK EVEN POINT
BREAK EVEN POINT= TOTAL FIXED COST FOR A PERIOD/ CONTRIBUTION MARGIN RATIO.
Total Sales for restaurant A is ₹ 2,00,000/, Total Variable costs is ₹1,00,000/, Total Fixed costs is ₹ 50,000/
Contribution Margin=2,00,000-1,00,000= ₹ 1,00,000 ( Total sales- Total variable Cost)
Contribution Margin ratio=1,00,000/2,00,000=0.5 (Contribution Margin / Total sales)
Break Even point for restaurant A = 50,000/0.5= ₹ 1,00,000 ( Total Fixed Cost/ Contribution Margin Ratio)
4. AVERAGE CHECK (APC)
This is a very important matrix which tells you what is the average spend of a customer. This can be calculated meal period wise , incase you are offering different meal periods like breakfast , Lunch and dinner.
HOW TO CALCULATE AVERAGE CHECK
AVERAGE CHECK= TOTAL SALES FOR A PERIOD/ TOTAL CUSTOMERS DINED DURING THAT PERIOD
5. TOTAL CUSTOMERS REQUIRED TO BREAK EVEN
This will tell you how many customers are required to break even.
HOW TO CALCULATE
CUSTOMERS REQUIRED TO BREAK EVEN= BREAK EVEN POINT/ AVERAGE CHECK
6. REVPASH (REVENUE PER SEAT HOUR)
This Matrix is useful in calculating the the restaurant turnover and the revenue generated per seat per hour. This will give an indication if your are utilizing your prime real estate, whether you are consistently filling all the seats.
HOW TO CALCULATE REVPASH
REVPASH= TOTAL REVENUE/ SEATS/ TOTAL OPENING HOURS
7. MENU ENGINEERING
Menu engineering is the study of the profitability and popularity of menu items and how these two factors influence the placement of these items on a menu. … Simply put, if you sell items that have varying levels of profitability and popularity, menu engineering may help you increase your profits.
Stars: Menu items high in both popularity and contribution margin. Stars are the most popular items on your menu. They may be your signature items.
These needs to be retained on the menu
Plow Horses: Menu items high in popularity but low in contribution margin. Plow horses are but low in contribution margin. Plow horses are demand generators. They may be the lead items on your menu or your signature items. They are often significant to the restaurant’s popularity with price conscious buyers.
Try increasing the price without affecting popularity .
Puzzles: Menu items low in popularity but high in contribution margin. In other words, Puzzles yield a high profit per item sold. But they are hard to sell.
Use promotions and offers to sell these items.
Dogs: Menu items low in popularity and low in contribution margin. These are your losers. They are unpopular, and they generate little profit.
These items needs to be replaced.
Free Download Menu Engineering Worksheet.
8. EMPLOYEE TURNOVER RATIO
Restaurants generally face a high staff turnover. Approximate employee turnover in Restaurant industry in India is around 60-70 %. This means that for every 10 employees , around 7 leave in an year.
The attrition effects the operational quality and consistency. Apart from the hiring costs, there is a lead time required to train the newly hired staff and bring upto required efficiency and quality levels.
HOW TO CALCULATE EMPLOYEE TURNOVER RATIO
EMPLOYEE TURNOVER RATIO= TOTAL NUMBER OF EMPLOYEES LEFT THE ORGANIZATION/ AVERAGE EMPLOYEES IN THE OPERATION X 100 ( CALCULATED FOR A PERIOD OF 1 YEAR)