When it comes to managing your restaurant inventory, there are many different metrics that you need to be aware of. One of those metrics is your inventory turnover ratio.
Your inventory turnover ratio is the number of times your restaurant replenishes stock over a specified period of time. It plays an important role in food ordering, recipe costing and menu pricing.
That’s why taking the time to calculate and understand your average inventory turnover ratio for restaurant food is important. It not only gives you better oversight over your inventory, it will help you improve your business and profits.
How to calculate average inventory turnover ratio
To calculate your inventory turnover ratio, you will need to use the following equations:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory
In January 2022, your Cost Of Goods Sold was $21,000. Your beginning inventory on the 1st of the month was worth $11,000 and your ending inventory on January 31 was worth $3,000.
Based on the above information, your inventory turnover ratio would be 3. That means you sold your entire restaurant inventory 3 times in the month of January.
Average Inventory = (Beginning Inventory + Ending Inventory) /2 = ($11,000 + $3,000) / 2 = $7,000
Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory = $21,000 / $7,000 = 3
The use of a restaurant inventory management system can automate these calculations for you, dramatically saving your team time so that they can focus on the core competencies of your restaurant that drive growth.
What is the average inventory turnover ratio for a restaurant?
Because restaurants use fresh perishable foods, you generally want to see an average inventory turnover ratio between 4 and 8 times a month.
If your ratio is lower, it usually means one of two things.
- You are over buying ingredients and they are sitting in inventory for long periods of time.
- Your sales are slowing down
If your ratio is higher, it means the opposite:
- You have good sales
- You are keeping inventory for short periods of time
While this may sound like a good thing, it increases the risk of you running out of ingredients and having to 86 an item.
How inventory Management Software Can Help
While it is possible to calculate inventory turnover ratios manually, it increases the risk of error. Inventory management software helps you maintain a more accurate inventory and is programmed to make these calculations for you. This reduces the risk of manual calculation error and ensures you are using the most accurate data possible.
This will save you valuable time while helping you make the best decisions about your restaurant and inventory possible.
For more information on the inventory turnover ratio and how our software can help, please contact us today.