A low turnover rate may indicate overstocked inventory or poor sales. A high turnover rate generally tends to cut down on wastage and can indicate robust sales. The more perishable, fresh ingredients you use, the higher your turnover should be. Research turnover rates in your niche to make educated comparisons. Your target ratio depends heavily on the type of restaurant you operate. What Does Your Ratio Mean?Ĭalculating your turnover offers visibility into many aspects of your inventory management and shows you when to dive deeper into any issues that arise. In this example, Dolce Gelato maintains an adequate inventory turnover ratio, as the industry average is ~5. A high inventory turnover ratio means you're holding too much stock. Here we see the gelato shop has an inventory turnover ratio of 4.9. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory (Beginning Inventory + Ending Inventory) / 2 = Average Inventory Next, find these three numbers - beginning inventory (in dollars), ending inventory (in dollars), and the cost of goods sold - to calculate the average inventory.Ĭalculate Average Inventory for a Time Period
While you can use total restaurant sales to calculate this ratio, cost of goods sold (COGS) includes markup costs and may give you a more accurate number.īegin by determining a time period you want to measure (monthly, annual, etc.).
Keep in mind that different inputs can be used to compute inventory turnover ratio.This article will show you how to calculate this ratio using the average inventory and costs of goods sold. Restaurant management software can make this process even easier by offering accurate and automated inventory reports. How To Calculate Inventory Turnover Ratioįiguring out your inventory turnover ratio means you'll have enhanced control over your waste, usage, stock levels, costs, and profits. Taking inventory stock is essential for maintaining food safety and food quality. Diligent inventory management leads to less waste and more productive use of existing inventory. Turnover is necessary to calculate because fresh food has a relatively short shelf life. In other words, inventory turnover measures the number of times the restaurant sold out its inventory in a specific time period.Ī low ratio indicates too much inventory in stock or low sales, while a high ratio suggests a flawed inventory purchasing plan (demonstrated by churn) or strong sales. Inventory turnover ratio is an efficiency metric that compares the amount of product a restaurant has on hand (called inventory) to the amount it sells. If you're in charge of a restaurant's day-to-day operations, read on to learn more about your inventory turnover ratio. Optimizing restaurant operations in 2023 and beyond We’ll share some helpful tools you can use to make these types of good business practices, accurate, easy, and profitable.ĥ Ways to Recession - Proof Your Restaurant Business Like all shrewd inventory management practices, taking time to figure out your ratio means you’ll have improved control over your waste, usage, stock levels, costs, and profits. Using the metric to calculate food cost, ordering, menu pricing, purchasing, and more, is a powerful decision-making tool. It's vital to keep track of your inventory to ensure your restaurant is profitable.Ĭonsidering restaurants operate on razor-thin margins, all types of businesses in the hospitality industry - from breweries to food trucks to fine dining restaurants - can benefit from tracking their inventory numbers meticulously.