One of the most powerful features of MarginEdge (ME) is the ability to view your theoretical food cost (or beverage cost) compared to your actual food cost. Tracking theoretical versus actual usage is a critical part of maximizing the profitability of any restaurant. In [me], not only can this be done for an entire category, but you can easily start to see results in minutes by tracking a few individual products.
Note: In [me], this is called “Theoretical Usage”, and sometimes we’ll refer to the reports simply as “Theoreticals”. Some people also call this “variance reporting”.
The Theoretical Usage Report is comparing what you should have on hand
(based on your purchases and sales) to what you actually have on hand
(based on your inventory).
So, what does Theoretical Usage actually mean?
Factor in all your purchases, account for any change in inventory, assume perfect portions were served, plus no breakage, no waste, no theft – that is your theoretical usage. That’s the product usage associated with having run perfectly for the period. (Hey, it’s called theoretical for a reason!) Once you know what the usage should have been, you can compare it to your actual usage to see if there is variance.
To determine if a restaurant is running at a truly great food cost for a period depends on seeing how close the actual food cost is to the theoretical cost. As an example, if two restaurants are each operating at a 30% food cost, they may not actually be running at the same level of efficiency. If one has a theoretical food cost of 29.5%, its 30% actual cost means it’s doing a fantastic job. If the other has a theoretical food cost of 25%, it’s got some work to do since their actual costs are 5% higher than they should be. Each location can have a different theoretical cost, depending on the unique product mix sold.
How can MarginEdge show me Theoretical Usage reporting?
Since ME receives and processes all purchase invoices, and is connected to your POS to receive sales at the product mix level (PMIX data), the system already knows everything you buy and sell without you having to manually enter any of that data! You just have to help us connect all the dots.
To start seeing theoretical usage on beer, wine and liquor (BWL), all that remains is associating your POS buttons with products. To see theoretical usage on food products, you’ll first need to add some recipes and then associate those recipes to POS buttons. Associating these products or recipes with your POS buttons is called PMIX mapping.
Can I just see my Theoretical On-Hand?
You can adjust the report to just show an up-to-date Theoretical On-Hand count. It uses many of the same ideas and calculations as the "Actual vs. Theoretical" calculation, but instead of using a start and end inventory, it uses one beginning inventory and adjusts through today based on purchases and sales. See this article for more information: Theoretical On-Hand Report
Before you jump in, some things to know:
- You’ll first need your POS to ME connection to be in place. For most clients, this is done from day one, so you should be in good shape.
- To view a Theoretical Usage report, you’ll need to ensure you have at least two inventories done in MarginEdge, since the reports are always run between a starting and an ending inventory.
- Theoretical reporting requires your POS setup to be solid for any products you want to report on. If you use “Open Bar” for parties, for example, then you won’t be able to get accurate Theoretical Usage info for any products sold during those events.
- You can have some Theoretical Usage reporting setup in minutes, and add reporting on more products over time. Consider tackling Beer, or Wine, or just a few key proteins to start. These can usually be done in very little time and provide quick ‘wins’ for you and your team.
You can literally start tracking theoretical usage of selected BWL products within minutes, since recipes aren’t required. Products can be mapped to the POS quickly, and once done, you can view theoretical usage details. Plus, if you have been doing inventory in ME for some time, you will actually be able to see theoretical reports for prior periods as well.
As for seeing theoretical usage of food products – this takes a bit more setup, but it can still be surprisingly easy to start tracking theoretical usage of individual products. The fewer plates a product is included on, the faster you can begin tracking it.
Step One: Set up your PMIX!