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It may seem obvious that managing an F&B business requires a basic knowledge of theoretical vs actual gross profit and cost of sales, but the shocking fact is that many businesses are not keeping track of these figures and are getting them confused. Knowing the difference between your Theoretical Cost of Sales/Gross Profit and Actual Cost of Sales/Gross Profit and examining any discrepancy between the two is extremely important for you to be able to manage your food and beverage business correctly.
Here, John Wood explains why it’s so important to understand the difference between the two and how to use these figures to improve the performance of your operation…
“What is the difference and why do I need to know this?”
Many businesses roll through the month/week not knowing how they are tracking financially until they have gathered all the figures together and the profit and loss figures get released from accounts. Often this can take a few days after the end of that accounting period. The problem is, that by this stage IT IS FAR TOO LATE.
There is nothing you can do about the previous week or month once it has passed.
Typically, when chefs and managers have a bad week/ month they ‘apply the brakes’. Desperately looking to find cheaper products, cheaper cuts, making portions smaller, putting the prices up, or even worse doing all of this, serves no purpose. Ultimately the customer ends up paying for your inability to manage your margins by spending more money on lower quality food, making them less likely to return. It’s a vicious circle.
In order to create a ‘Theoretical Margin’, the following points need to be taken into account.
By pulling this data together every day you will be able to have a daily Theoretical Margin figure, either by individual dish or drink or as a combined total.
From this you can create a Menu Engineering Report.
This is when you take all of your food or beverage related costs:
The next stage is to compare the total cost of production of your Food and Beverage with your sales.
This will allow to accurately calculate the Cost of Sales (CoS), often referred to as Food Cost and Beverage Cost, both as a percentage and in monetary value.
It will also allow you to calculate Gross Profit (GP), again, as a percentage and a monetary value.
How should you compare your Theoretical vs Actual figures?
If your dishes and drinks are correctly costed and a sensible wastage margin has been built in, your Theoretical and Actual figures should be reasonably close. Typically the Theoretical figure tends to be better than the Actual figure by around ½%, however, if the discrepancy between the two is greater than ½% then it’s important to investigate the reasons why.
Typically, these are the reasons for a why there maybe a larger variance:
It’s both difficult and time consuming to investigate properly and find out where the issues are. Often, businesses will speak to the chef/s and manager/ service teams and blame them for margins not being good or being close to their theoretical figures. They then revert back to ‘applying the brakes’.
At Kitchen CUT we believe there is little to be gained by apportioning blame and finger pointing, that often a team will have no idea where the issues are and become demoralised. Without specific details to focus on and examine, it’s impossible to see where you are going wrong. With this in mind, we have created a system that allows you see all of the above very clearly with detailed line by line, recipe by recipe, menu by menu, product by product analysis so you can see exactly where the issues are, allowing you and your team the opportunity to tackle these far more effectively.
By automating many of these manual processes we maximise the accesibility to these critical informations, enabling you and your teams ultimate control.