For restaurants and cafes, the cost of goods sold (COGS) is easily one of the most important metrics to measure and track. Simply put, it’s defined as how much it costs for you to produce a menu item given a specific period of time.
The reason COGS is paramount to a restaurant/cafe business is entirely because it’s tied to profit margins, revenue, inventory. Businesses with little to no inkling of how they’re handling their COGS often find themselves in a pickle because they’re unaware of their restaurant/cafe’s financial health and performance. Knowledge of how to calculate COGS is essential to stay in control of finances. It’s not difficult, just a little bit of help on the formulas and you should be good to go.
What exactly is COGS?
The widely known definition of COGS is the total cost of all the ingredients that a restaurant/cafe uses to create menu items, given a time period.
Industry-wide, an estimated one-third of a restaurant/cafe’s gross revenue is dedicated to paying off COGS. This COGS alongside other spending areas like staffing, utilities, rent, etc are subtracted from your restaurant/cafe’s gross revenue to work out your net profit.
Since the cost of produce fluctuates with the availability of them during certain seasons, etc, COGS will definitely be affected by changes as well. Best practices come with being vigilant when it comes to COGS patterns, monitoring them in a routine manner, and being able to make efficient business decisions with this information.
To calculate your COGS, you will require the following for a determined time period: