The average restaurant spends between 20 and 40 percent of the money it makes on food and beverages. With that much money at stake, it stands to reason you want to keep a close eye on the bottom line.

MarketMan’s Actual vs. Theoretical Food Cost report will pull in all the information you need to make informed decisions about your spending while identifying fixable issues that save you money.

Learn more about MarketMan’s reporting capabilities.

What’s the Difference Between Actual and Theoretical Food Cost?

You probably know there’s a difference between your theoretical inventory depletion, which is recorded in the sales reports from your POS system, and your actual inventory depletion —  the amount of food and beverages that actually disappears from your shelves.

Actual food cost takes into account the cost of inventory lost to over-portioning, theft, spills, misfires, over-pours, comps for both staff and guests, and food waste in the kitchen.

By adding the cost of inventory sold, then the cost of actual inventory depletion, you can analyze the difference between the amount of money you should be spending on inventory versus what you’re actually spending.

The gap between those two numbers is your cost variance.

Understanding Actual vs. Theoretical Food Cost Variance

Cost variance is a comparison of your actual food cost versus your theoretical food cost. This is the number you really want to look at when determining how efficiently your restaurant is using its stocktake.

Theoretical food cost, for instance, changes depending on the price of food and drink items. If you simply looked at the cost of goods sold against your target food cost, you would be chasing a constantly changing number.

Actual food cost can also vary by the price of ingredients. And it doesn’t take into account the kinds of goods sold, either. If, for example, your New York strip is a popular item one week, you'll definitely find your COGS higher than usual.

The best way to analyze how efficiently your restaurant is using ingredients is to look at the variance between actual and theoretical food costs, rather than the variance between either of those and your target food cost percentage.

If the variance between your actual and theoretical food costs is small, then your restaurant has food waste down to a minimum. If that number is large, it’s time to start investigating and finding ways to fix the problem.

Actual vs. Theoretical Food Cost Reports

Of course, you can sit down and figure out food costs on your own, but it’s a time-consuming and complex task. An automatically generated variance report will give you a more accurate picture in real time.

MarketMan will run an actual vs. theoretical cost report for you. It will pull in information from all of your deliveries entered and receipts scanned, your inventories (you need at least two in the tool), your recipes, your food waste log, and the goods sold through your POS system.

To use the report, upload all of your delivery invoices and receipts and make sure all of your recipes are built in the Cookbook feature. You’ll also need two inventory counts in the system and a fully integrated POS system.

Once everything is set up, choose the opening and closing dates for the timeframe you want to analyze.

The report will pull information from all of the categories mentioned above to calculate your total sales, overall gross profit, theoretical profit, and variance.

It will then generate actual and theoretical costs not only as a percentage but as a dollar amount as well.

The tool allows you to drill down to food categories, which it compares against your variance.

It will even let you look at individual items. You can follow them through the restaurant, from delivery to inventory to customer, to see where cost discrepancies are happening.

The green column reflects actual usage based on invoices and inventory counts uploaded to MarketMan. The purple column reflects theoretical usage, which relies on recipes and sales. The blue column is where your variance is calculated for each category or item.

All of this is customizable by adjusting the filters to see exactly what you want to see.

Spots where you may have technical errors, like an unlogged delivery or an unscanned receipt, usually indicated by a negative variance.

Working through the report, you can zero in on issues and then come up with solutions to fix them.

Other Steps to Reduce Food Costs

You can always reduce food costs by finding the best prices and the right vendors to buy from, but this is not a set-it-and-forget-it process. It’s important to keep up-to-date on food and beverage prices, and adjust your menu accordingly. It’s also important to keep an eye on which vendors are offering the best deals and make the switch if need be.

But reducing food costs doesn’t stop there. There are steps you can take within your restaurant that will help you shave dollars off your inventory budget, and knowing your food cost variance can help.

Lean Inventory Management

Lean inventory refers to the process of keeping just enough stocktake on hand to meet customer demand. By doing so, a restaurant can reduce waste caused by spoilage and expiration.

Correct Portioning

Make sure everyone on your BOH staff is on the same page when it comes to prepping and cooking meals. Use a cookbook tool that details exact measurements for each of your recipes.

Have staff place waste from cutting in a single container, so management can assess whether too much of your food is ending up in the garbage.

Strict Delivery and Inventory Processes

Assign one person to order ingredients, take delivery, and log invoices and receipts. That same person should also be involved in taking regular inventory. By assigning one point person for tracking and purchases, you reduce over- or under-ordering, missing receipts, and mistakes in inventory.

Take inventory every day at the same time or on a regular basis.  By taking regular inventory, you keep an accurate count of stocktake and are more likely to catch discrepancies when they occur.

Food Waste Reporting

Any time a staff member drops a plate, over-pours a drink, or submits the wrong order, record the waste in MarketMan’s Waste Events. This is also where staff meals, spoilage, and comped meals will be stored.

When you analyze your food cost variance, you can look at it against your food waste report. If the actual food cost is coming from wasted food, you can zero in on the problem and adjust practices to fix it.

Staff Training

Once you have all of these practices in place to reduce food waste, it’s time to train your staff. Simply giving them a food waste log or a digital cookbook, after all, won’t solve the problem. They have to know how and when to use it.

Hold training sessions on each of your processes and check in regularly to see how your staff is adapting and to collect feedback.

MarketMan’s Tools to Reduce Food Costs

There are plenty of tools out there to help you reduce food costs using the methods described above, many of which integrate with your POS system.

On top of its actual vs theoretical food cost reports, MarketMan includes tools for all of them.

• Real-Time Inventory: Inventory managers can update stocktake in real time via mobile.

• Digital Cookbook: Build recipes with correct portioning within their app.

• Receipt Scanning: Scan and store receipts for quick referencing.

• Delivery Reports: Log deliveries into the app.

• Food Waste Log: Staff can report food waste when it happens via the mobile app.

• Real-Time Food and Vendor Price Tracking: Keep tabs on fluctuating food prices, as well as which vendors offer the best prices.

Using an inventory management tool such as MarketMan will help you get a clear picture of where your money is going when it comes to food costs. Keep on top of your actual versus theoretical food costs and use it to identify and eliminate costly problems and save money.

MarketMan's restaurant management software gives you the power to automate inventory tasks, control food costs, and optimize back-of-house operations. It eliminates manual work and offers restaurateurs advanced insights for strategic decision-making. Boost your efficiency, reduce waste, and take the stress out of restaurant inventory management. Book a demo today to discover how MarketMan can transform your restaurant!