How To Improve Your Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is the largest expense of businesses in the food, beverage, and manufacturing industries. It includes the cost of materials, direct labor, and overhead expenses related to production. Businesses strive to keep their COGS low in order to maintain profitability and competitiveness.

Here are some tips on how your business can improve its cost of goods sold:

Monitor Your Inventory

The first step to reducing your cost of goods sold is to keep a close eye on your inventory. You should know how much inventory you have on hand at all times and what the value of that inventory is. By tracking your inventory levels, you can avoid over-ordering and tying up too much cash in stock. The goal is to maintain enough inventory to meet customer demand without having too much inventory on hand.

Ideally, you want to have as many of your products under a contract with your vendor as possible. This can help control the distribution costs, manufacturer costs, and actual product costs. By partnering with Optimized Hospitality, you gain access to our expert team who can help you navigate those contracts and find the best vendor solutions for you. Already have a contract? We can help by auditing your existing contracts to ensure that you’re being charged accordingly.

Do Some Sales Forecasting

If you’re not already doing so, start forecasting your sales. This will give you a good idea of how much inventory you’ll need to purchase and help you avoid overspending on stock. You can use historical sales data to create a baseline forecast, then adjust it based on factors like seasonality and expected changes in demand. This way, you’ll have a good idea of your future sales volume and can plan your inventory purchases accordingly.

Consider Drop Size Incentives

Drop size incentives are a great way to save money in the restaurant supply chain. By placing orders for more than a certain amount (often 5,000 USD or more), you are entitled to a discount on your purchase. This incentive reduces the cost of your order, allowing restaurants to benefit from lower prices for larger scale orders. When used in combination with other incentives, such as volume discounts or loyalty programs, drop size incentives can significantly lower your overall costs and increase your bottom line. It is important to evaluate the cost savings associated with drop size incentives before making any purchase to ensure you are getting the best deal possible. By taking advantage of these incentives, restaurants can enjoy significant cost savings while still having access to the supplies they need.

Substitute Materials Where Possible

Restaurants can save money by finding substitute materials at a lower cost. This could involve researching alternative suppliers and materials, or looking for contract-based bargains. For example, restaurants may be able to negotiate volume discounts with bulk suppliers; they may also be able to purchase certain items in large quantities to reduce their overall costs. Additionally, working with contracts can be beneficial, as restaurants may be able to identify any hidden costs that could result in reduced pricing on materials.

By becoming more familiar with the current market prices of ingredients and supplies, restaurants can better understand what they should pay for a particular item or service. They can also use this knowledge to determine whether it would be more cost effective to buy materials in bulk or purchase individual items. Doing this regularly can help restaurants save money on their supplies and ingredients.

Find Ways To Reduce Storage and Transportation Costs

When looking to reduce storage and transportation costs, restaurants should look at consolidating their orders whenever possible. By doing so, they can purchase larger quantities of items at a discounted rate, reducing the overall cost of goods. Additionally, restaurants should buy as much as possible from one supplier in order to give themselves more leverage in negotiating better prices. This can help further reduce costs associated with storage and transportation. By taking these steps, restaurants can drastically reduce their overall operating costs.

It is also important to consider the environmental ramifications of reducing storage and transportation costs. Restaurants have a responsibility to be mindful of their impact on the environment, and focusing on reducing storage and transportation costs can help lower their carbon footprint. From ordering larger bulk quantities to consolidating orders, restaurants can significantly reduce their environmental impact while saving money.

Takeaway

If you’re looking to maximize your business’s profits, reducing the amount of money spent on cost of goods sold (COGS) is a must. Utilizing these tips and working with Optimized Hospitality can help you save time and money while sourcing the best quality food products and ingredients. Our experienced team has the knowledge and expertise to provide you with quality products at competitive prices. Discover how Optimized Hospitality can help your business take the next step and maximize profits. Contact us today to learn more!