How to Track Restaurant Sales Correctly
There is a right way to track restaurant sales to ensure you are accurately calculating your restaurant prime cost, which is your guiding number for profitability.
Just in case you’re new to the concept or you need a refresher, here’s what makes up prime cost: your total cost of goods sold (food, NA beverage, liquor, bottle beer, draft beer and wine cost) plus your total labor cost including taxes, benefits and insurance. While our target prime cost for a restaurant doing $850,000 a year or more in sales is 55 percent or lower, the key to calculating this number correctly starts with using the right sales figures. (Here’s a link to an article that goes into prime cost in great detail.)
What do you mean David, the right sales figures? Sales are sales, right? While on the surface the short answer is sales are sales, the long answer is there are gross sales and net sales and knowing the difference is how you track restaurant sales correctly.
So what’s the difference and why does it matter?
Gross vs net sales
One of the challenges in understanding the difference between gross and net sales comes from the fact that the vast majority of point of sale (POS) systems label net sales as gross sales, and you don’t even know you’re looking at the wrong number.
Gross sales is the ring at the register, before discounts and not including sales tax. (Sales tax is simply the pleasure the government gives us to collect their money and penalize us as if they were the mafia if we borrow it and pay it late.) Sales tax collected is not a sale. An example would be if you sell a burger at $10 and the customer used a $5 coupon when paying for the burger, $10 would be gross sales, the sale before the discounts are taken off the ticket.
Net sales is the ring at the register, after discounts have been removed and not including sales tax. Using the example above, you sell a burger at $10 and the customer used a $5 coupon when paying for the burger, $5 ($10 gross sale minus the $5 coupon/discount) is your net sales.
As I mentioned before, the vast majority of POS systems get this wrong. Most POS systems label net sales as gross sales. Take a look and you will find that the column on your daily sales report that is listed as gross sales has discounts already removed, making that number your net sales figure.
Why is it important to understand the distinction between gross and net sales? The down and dirty answer is, so you can calculate your prime cost correctly. If you use the wrong sales figures, your food cost will look high and you might fire your chef over it. Your pour costs will look high and you might fire your bar manager over it. Heck, you might fire your general manager over the fact that they cannot get their numbers under control and the reality of it is, they actually may have their costs in line, but you were using the wrong sales figures to calculate it.
So which one do you use to calculate your prime cost? Read this article to learn the best number to use to track restaurant sales!