3 numbers to make your hospitality business sing from the get-go
When starting a hospitality business, focus on the key numbers to track so costs don’t spiral out of control. Here are the magic three numbers that need to be on your radar.
While MYOB software packages will give you a whole stack of numbers on your business’ performance to chew on, there are a few hospitality-specific numbers you should be tracking.
Some business owners are great at analysing their businesses and finding efficiencies in places unknown. Others are in it for the passion of creating great food – not creating great numbers.
But passion for great food is just one part of the equation – if the numbers don’t work, then the business isn’t going to last all that long.
There are now some great restaurant-manager software packages, such as Cooking the Books, which can help you out with some of this stuff, and having a great accountant or bookkeeper by your side can also help your numbers sing.
So, what are some of the numbers you need to make sure you’re plating up beautiful food plus producing a tasty set of numbers?
1. Food cost
According to the Restaurant & Catering Industry Association of Australia, food makes up 34.1 percent of total business costs.
You’d think calculating food cost would be as easy as dividing food sales by the cost of food – but it’s not quite that simple.
For example, to find your food cost in any given month you need to:
- Know the value of the food on your shelf at the start of the month
- Add your food purchases during that month
- Subtract the value of the food on your shelf at the end of the month
From there, you divide this number by your total food sales for the month. Then multiply that total by 100 to give you a percentage. Here’s how it might work.
Say you have $5000 of food on the shelf at the start of the month, then buy $20,000 worth of food during a month, and there’s $4000 worth of food on your shelf at the end of that month.
It becomes 5000 + 20,000 – 4000 = 21,000
If you bring in $100,000 of food costs during the month, you divide the 21,000 by 100,000 to get 0.21.
Multiply that by 100, and you get 21 percent. This becomes your food cost value.
This gives you a baseline to work from.
So, if you’re finding your food-cost value is too high, you can start to think about solutions to lower your food cost by taking non-selling items off your menu or trying to find a better supplier deal.
2. Staffing costs
The cost of staff is the biggest cost a hospitality business faces – and it seems like it’s going up all the time.
In fact, if you add up not only wages but superannuation, the cost of training and payroll tax, you’ll find your staff can cost close to half of your business expenses.
So, having a handle on how much your staff is costing your business is important.
There are several ways to measure staffing costs, but wage cost and total labour cost are two measures to help you get a handle on things.
Both are simple to work out – you take the cost of wages, or the total employment costs (including superannuation, payroll tax etc.) and then divide it by total sales. Then multiply that total by 100 to give you a percentage of sales.
For example, if your wages for the month was $30,000 and you brought $100,000 into the till, your wage costs are 30 percent of sales.
If you start tracking that number, and it starts going up, then you know you may have a problem. How you solve that problem is up to you.
3. Basket analysis
Great POS software should be able to help you out with this one, but a bit of time spent looking at purchasing patterns can be a great way for a hospitality business to get the most out of their existing menu.
Take the morning crowd, for example.
Are they buying single cups of coffee or are they buying a muffin with their coffee?
If it’s just the drink, can you offer a discount on a muffin (still above your margin) when a customer buys a morning coffee?
You can then create a “coffee + muffin” item in your POS software to track your success of the offer.
Looking at the purchasing behaviour of your customers, backed by actual data rather than a vague impression, before you take on creative solutions to encourage upselling.