Stop Giving Away Your Profit - It’s Costing You More Than You Think
How to stop money leaking out of your business.
For every dollar your business gives away, or throws away, you have to put three into the till!!
That means that every time you comp a meal, you have to sell another three to cover that cost. For every dollar of food waste, you have to sell three dollars worth of additional food.
By the time we’ve given away a few staff meals, wasted a few others and given away half a dozen coffees; we’ve got to sell many many more meals, just to get us back to zero.
But wait there’s more . . .
Put another way; if we give away one meal, we’re effectively giving away four meals.
Really? . . .Yes! Let’s take a look at the numbers.
Let’s say you give away a $10 sandwich with a $3 food cost and $1 profit margin.
If you give that sandwich away for free, it just cost you $3 cold hard cash.
Therefore, to offset this cost you will need to sell three more sandwiches. –That’s four sandwiches out the door just to get you to zero! And that’s before we start thinking about your other costs and expenses.
Meanwhile, if you had sold all four of those sandwiches you would have made a $4 profit. Have a think about that in the context of your business; the numbers may scare you!
This kind of “leakage” over the course of a year can have a massive impact on your food costs and profitability, so it’s really worthwhile focusing on it to work out how much it’s really costing you, and how much you can reduce it. This is where having the assistance of a hospitality consultant can make a big difference.
Comping
Restaurant owners love giving food away; it plays into their natural instinct to provide hospitality and make people happy. But, it’s expensive!
I’m not saying comping is a bad thing to be doing. In fact, I would go as far as to say it’s a very important thing to do, when done properly. But it’s important to ensure that a comp is driving your business forward not backwards.
Comping your barista’s friends is a bad thing, for example, and adds very little value to your business.
Comping a meal for a customer service failure, by contrast, is a good investment. Surprising a regular customer with a free item, or a bit of value-add to thank them for their loyalty, is also a good investment. –Just don’t do it every time they walk through your door.
Staff Meals
Free meals are a great benefit to provide your staff. It shows that you care, makes them feel good and gives them an opportunity to become really familiar with your menu.
Feeding your staff every day can get expensive though, especially if staff have unrestricted access to food. So it’s important to have a policy around this so that staff understand their entitlement, and you know what it’s costing you.
Food Waste
Wastage has a massive impact on our food cost ratio and comes at us from every angle, including:
Mistakes and wrong orders
Training and testing
Perished or expired produce
Trim and off-cuts
Unsold counter food
To some degree, food waste is an unavoidable cost of business, especially when it comes to training and testing. That said, the key thing is to allow for it in your budgeting and costings, and then track it so that you can focus constantly on reducing it.
In summary . . .
We all know that giving away food and food wastage costs us money. But often we don’t fully understand the scale of this cost, or how much we have to sell in order to offset that cost.
Worst of all, if we’re not keeping track of it and actively working to minimise it, it’s likely these costs will creep higher.
However, the great news is, reducing leakage in your business is super simple and has an instant, and often substantial, impact on your profitability.
To find out more about how to reduce wastage, and what other benefits our hospitality advice could provide, contact us.