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How do you eat an elephant?

How do you calculate food cost? Beginning Pork Chop inventory from January ($250) plus purchases over the course of the year ($5,000) minus current inventory ($300). Food cost for pork chops = $4,950. Sounds crazy doesn't it? 

It's difficult to get a handle on big numbers. It's much easier to understand and control costs when we calculate the food cost of the Grilled Pork Chop as $1.02 per serving/cover. In the same way, we should calculate other expenses using a cost per cover basis. It reduces big dollars down into easily digestible cents and helps you keep tabs on your expenses category by category before they get out of control. It's simple and effective. Here's how it works.

Cost per cover is calculated by dividing the total number of covers served in a given period (ideally four week periods) by the dollar amount of the expense. So even though sales and cover counts may vary from period to period, you'll easily be able to compare your costs in each category. Take a look at the sample below.

Look at the Direct Operating Expenses of the Red Rock Grill for Periods 7 and 8.The total costs as a percentage of sales has gone down. Good news, right? But look more closely at the Laundry/Linen category. The cost per cover of Laundry/Linen has increased by .04¢ in just one period. That's a huge increase that could translate into thousands of dollars over the course of a year if left unchecked. In this case you can take immediate action by:

  1. Contacting your linen supplier to find out the average percentage increase in base cost from the prior period.
  2. Examining the linen usage guidelines posted in your operation. Are the guidelines being followed?
  3. Evaluating the "mix" of linen usage -- napkins, towels, aprons, etc. -- to ascertain if current needs are in alignment with current applications.

You can also compare your costs per cover to Industry Averages to see if you're in the ball park. Operating Expenses consist of many categories. For your numbers to be meaningful, you'll want to make sure that your Direct Operating Costs consist of the same categories used by experts. Using the Uniform System of Accounts for Restaurants will allow you to "Compare Apples to Apples."

We've attached a Microsoft Excel worksheet that contains a complete Income and Expense worksheet, automated to calculate your costs per cover.

Don't let that big elephant of controlling costs choke you to death. Just tackle it one bite -- or one cover -- at a time.

See also:

Act now before it's too late
Are my costs too high?

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