You have a fantastic food truck menu. You have a well trained staff that provides great service to your customers. Unfortunately at the end of the day, the money left in the till just doesn’t add up. So how do you dig into the numbers to understand where your food truck profit (or lack of profit) is coming from?
Anyone responsible for the operation of a food truck must understand what the term Cost of Goods Sold (CoGS) represents and how to work with the standard formula.
What is Cost of Goods Sold?
Cost of Goods Sold refers to what the cost of the product used was to generate sales for your food truck. The Cost of Goods Sold calculation is used to calculate a Cost of Goods Sold percentage for a given accounting period.
This accounting period can be different from food truck to food truck. In most cases, an accounting period refers to a calendar month, from the first day of the month to the last day of the month; however, there are some food trucks that use a 13 period calendar year, where the year is broken into even four week periods equaling 13. Many of the food truck owners we’ve spoken with have found this to be more effective than a standard 12 period year.
If you want to delve even deeper, your accounting period be as small as a shift, a day or a week. The smaller the period, the easier it will be to pin point mistakes and correct them promptly. In this article, we’ll use a calendar month accounting period.
Standard Cost of Goods Sold Formula
[ending inventory for the last period]
|B||+||Purchases||[total purchases made for a given period]|
|C||=||Total Available||[total product available to be sold]|
|D||–||Ending Inventory||[total dollar value of the inventory counted at the end of a given period]|
|E||=||Product Used||[dollar value cost of goods sold or the actual product taken from the shelves]|
|F||÷||Sales||[total sales for a given period]|
|G||=||Cost of Goods Sold %||[how much product was used to generate a dollar in sales]|
chart adapted from the restaurantexpert.com
Product Used represents exactly that: the dollar amount of the entire amount of product used in any given period ( Total Available minus Ending Inventory). Use literally refers to product used (or the product that has left your shelves) and use can be categorized in four ways.
- Waste or Spoilage: If your staff is burning food and it gets thrown away, your staff is giving a larger portion than the recipe calls for or your refrigeration unit goes down and nobody caught it, so you had to throw away product, it is still considered use.
- Theft: If your staff takes food home in their backpack, give friends free drinks or make food for them that is not authorized, this too is considered use.
- Comps: This refers to all comps that are not rung up on your registers.
- Sales: The reason you hope your entire inventory of product gets used, because it means the only reason product left your shelves was to bring in money.
Understanding This Calculation is a Must
The Cost of Goods Sold calculation is your key indicator that will show how close your food truck came to achieving its goals and is necessary to quantify performance. These numbers will allow you to better interpret how your truck performed in a given period.
For example, if you have a target food cost of 25% and your food cost percentage came in at 30% on $10,000 in food sales, you would have used $3,000 in food product vs. the $2,500 that was budgeted. That means you’ve wasted $500.
I hope this explanation shows you that calculating Cost of Goods Sold is a must for every food truck on the street.
Has calculating Cost of Goods Sold helped your food truck business make positive adjustments to your profits? We’d love to hear how. You can share your thoughts in the comment section below, Tweet us or share them on our Facebook page.