For every dollar you give away, or throw away, you have to put three in the till.
That means every time you comp a meal you have to sell another three to cover that cost. And, for every dollar of food waste, you have to sell three dollars worth of food.
So, by the time we’ve given away five staff meals, unnecessarily wasted the equivalent four meals and given away half a dozen coffees; we’ve got to sell 30 odd 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 in on it to work out how much it’s really costing you, and how much you can reduce it.
In this post we’ll dive into the key areas of your business you should be looking for leakage, and you can download my free ‘top tips for reducing leakage’, to show you how to minimise it.
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, 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.
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.
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 is costing us money. But often we don’t fully understand the scale of this cost; or how much we have to sell in order to off-set that cost.
Worst of all, if we’re not keeping track of it and actively working to minimise it, it’s likely these costs are creeping 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.
Keeping leakage to a minimum is one of the best ways of growing profitability. To help you reduce yours, I’ve created a list of my favourite leakage busting ideas.