What Percentage Of Revenue Should Your COGS (Cost Of Goods Sold) Be?

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Are you a restaurateur trying to optimize your profits? If so, it’s important to understand the impact of your COGS (Cost Of Goods Sold) on your restaurant’s overall revenue. But what percentage of revenue should you allocate for COGS? This is an essential question that all restaurant owners must answer in order to maximize their earnings.

In this blog post, we will explore the concept of COGS and why it is important, factors that can influence your cost of goods sold, benchmarks for the restaurant industry cogs and more. So if you want to learn how to effectively manage costs at your restaurant and make sure that every penny counts – read on!

What Is COGS And Why Is It Important?

COGS is the total cost of all products, services and materials used in the production of goods for sale. This includes raw materials, labor costs, manufacturing overhead costs and the cost of goods sold (such as food, drinks and other items purchased directly by your restaurant). Knowing the cost of these goods allows you to determine how much profit you will make from each sale. It also helps you estimate your break-even point – or at what level of sales volume your business starts showing a profit.

Factors That Impact Your COGS

There are several factors that impact your COGS. These include: type of product being sold; price per unit; operating expenses such as rent, wages and other overhead expenses; quality of the product; and the local market conditions. By understanding these factors, you can more accurately forecast your restaurant’s cost of goods sold and adjust it accordingly in order to remain profitable.

Benchmarks For Restaurant Industry Cogs

The National Restaurant Association (NRA) publishes benchmarks for COGS in the restaurant industry based on research conducted with over 7,000 establishments throughout North America. According to their survey, the average COGS is 28 percent of total sales revenue across all restaurants – but this figure varies depending on type of cuisine offered, region of the country and other factors. Additionally, most experts agree that a well-run restaurant should aim to keep their COGS at or below 30 percent of their sales revenue in order to remain profitable.

Conclusion

COGS should be a top priority for restaurant owners if they want to maximize their profits. Understanding the cost of goods sold and how it impacts your overall revenue is essential, as is staying abreast of factors that influence your COGS. Additionally, research industry benchmarks to help you determine what percentage of revenue should go towards COGS in order to remain profitable.

 

 

Related FAQs

To calculate your COGS, you will need to add up the total cost of all goods that are used in the production and sale of your restaurant’s products. This includes raw materials, labor costs, manufacturing overhead costs and the cost of goods sold (such as food, drinks and other items purchased directly by your restaurant).
The National Restaurant Association (NRA) publishes benchmarks for COGS in the restaurant industry based on research conducted with over 7,000 establishments throughout North America. According to their survey, the average COGS is 28 percent of total sales revenue across all restaurants – but this figure varies depending on type of cuisine offered, region of the country and other factors. Additionally, most experts agree that a well-run restaurant should aim to keep their COGS at or below 30 percent of their sales revenue in order to remain profitable.
There are various ways you can reduce your COGS such as buying in bulk, negotiating prices with suppliers and vendors, using high quality ingredients, outsourcing production processes and identifying any potential waste or redundancies within your supply chain. You may also want to consider renegotiating contracts with employees and getting creative with pricing structures for customers in order to generate more revenue without raising costs.
The type of product being sold, price per unit, operating expenses such as rent, wages and other overhead expenses, quality of the product and local market conditions are all factors that can affect COGS. By understanding these factors, you can more accurately forecast your restaurant’s cost of goods sold and adjust it accordingly in order to remain profitable.
It’s a good idea to regularly review your COGS to ensure that you’re still on track with industry benchmarks and staying within budget. This could be done on a monthly, quarterly or yearly basis depending on the size and complexity of your business. It’s also important to be aware of any changes in market conditions which could affect the cost of goods sold so that you can make necessary adjustments.
If your COGS is higher than the industry average (which according to the National Restaurant Association is 28 percent of total sales revenue), then it may be an indication that your costs are too high. Additionally, if you’re not able to achieve a sufficient level of profitability after taking into account all other costs such as rent and payroll, it could be a sign that your COGS is too high.
One of the most common mistakes is failing to calculate COGS accurately. This can result in an inaccurate understanding of profitability and lead to decisions that impact performance negatively. Additionally, some restaurants also fail to factor in variable costs such as seasonality or changes in market conditions, which can also affect their bottom line if not taken into account.
Inventory management plays an important role when it comes to controlling costs and ensuring that you have enough stock of the right products on hand. If your restaurant is not properly managing its inventory, it can lead to excess waste or shortages which can increase COGS and lower profits. Regular review and adjustment of inventory levels can help mitigate these risks.
Strategies for controlling COGS include buying in bulk, negotiating with suppliers for better prices, reducing wastage, creating accurate forecasting models to ensure you always have just the right amount of product on hand and using quality ingredients that provide good value for money without compromising on taste or presentation.
Yes, businesses may be eligible for certain tax deductions related to COGS. This includes any costs directly associated with producing or selling goods, such as the cost of materials and labor used in manufacturing items. Additionally, businesses may also be able to take advantage of special tax credits or deductions if they invest in new equipment or make investments in research and development.    

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