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CoGS vs Direct Operating Expenses - YouTube
Channel: The Restaurant Boss
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do you know the difference between cost
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of goods sold and direct operating
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expenses today's video I'm going to
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explain that to you in great detail
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hey everybody Ryan Groff in here author
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speaker chef restaurateur founder of the
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restaurant boss calm as well as
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restaurant profit and performance calm
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and like I said earlier today we're
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going to talk about the difference
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between cost of goods sold and direct
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operating expenses while they're very
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similar they're also extremely different
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most restaurants get these two confused
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and they're tracking them in the wrong
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places it's also a little bit difficult
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to track them so I'm going to share with
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you a little trick and a way to track
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these expenses a little bit better let's
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do a quick review here so cost of goods
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sold this is when we say food cost or
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beer cost wine cost liquor cost those
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are costs of goods sold let's just break
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it down simply it's the cost of a good
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that we're selling right it's the cost
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of a good that we're selling so how much
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did you buy something for how much are
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you selling it for divided right so it's
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the it's the sales price divided by the
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purchase price or the production price
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if it's like a recipe basically again
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I'm not getting into formulas here today
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you can look for other videos where I
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have costs of good formulas and things
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like that but direct operating expenses
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is something that we haven't really
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talked about too much let me just
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quickly go back to cost of goods sold
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here for a second that is a direct
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expense now I know this is going to get
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confusing so bear with me but what I
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mean by a direct expense is that if you
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if you sell a hamburger every single
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time you sell a hamburger it's going to
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get a bun and a piece of cheese and a
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burger patty and a whole bunch of other
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things right it's directly related
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meaning you can't sell a hamburger
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without selling a bun and a burger I
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mean there's always the exceptions right
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but for the most part now when we get
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into direct operating expenses and
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forgive the word because this is where
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the confusion comes in these are direct
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in the sense that they're related to
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sales but they're not directly related
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and we should almost call them like
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related operating expenses but we don't
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we call them direct operating expenses
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and what that means is
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something like toilet paper or hand soap
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or hand towels or to-go containers these
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often fall into the direct operating
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expense category now every restaurants
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going to do things different sometimes
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you do include to-go containers and cost
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of goods sold sometimes you don't if you
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have any specific questions about if you
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should or shouldn't please comment in
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the video below here and I'll be sure to
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answer them as best I can I have some
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very specific rules about that but again
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that's not the purpose of today's video
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the purpose is the direct operating
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expenses so what I mean by like
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chemicals or toilet paper or hand towels
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or hand soap is that the busier your
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restaurant is the more that stuff you're
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going to use but it's not a hundred
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percent directly related meaning if you
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have a hundred customers in your
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restaurant today and they all order
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hamburgers you're going to sell a
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hundred buns and 100 burger patty but if
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you have a hundred customers in your
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restaurant say you can't relate that to
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an exact amount of toilet paper but if
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you have 200 customers in your
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restaurant generally speaking you're
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going to go through more toilet paper
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than 100 but it's not a hundred percent
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directly related right you're going to
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use more hand soap with a hundred cutter
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with two other customers than 100 you're
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going to use more dishwashing chemicals
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with 200 customers than with a hundred
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but not a one-to-one ratio so that's the
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difference now a lot of people ask what
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should my direct operating cost be
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somewhere between four and eight percent
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is the general industry standard let's
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just say six percent it's going to
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depend on what you put in there it's
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going to depend on the volume of your
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restaurant it's going to depend on the
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type of restaurant fast-food restaurants
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that use a lot more paper goods and a
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lot more to go containers like fast food
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quick service usually have higher direct
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operating expenses then quote unquote
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you know finer dining or plate service
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restaurant but again it's going to kind
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of vary what's most important is you
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always hear me say when it comes to your
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numbers is that you're comparing your
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numbers to your numbers and nobody
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else's I don't care what someone else
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was direct operating expenses because I
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don't know what they put in it what's
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yours I don't care what someone's food
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cost is because I don't know what they
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put in it what's your food cost tracked
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weekly monthly yearly
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is it trending down or is it trending up
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it's turning up we got a problem we got
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to fix it was turning down you're doing
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great if it's flat you're probably doing
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great too so the point is is the
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difference between cost of goods sold is
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that they are 100 percent related a
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product and a sale direct operating
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expenses are partially related meaning
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that they move in a general trend
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together but they're not 100 percent
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were later so I promise you easy way to
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track these and to be honest unless you
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are custom building spreadsheets or
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you're a very advanced user in
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QuickBooks and you're able to create
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categories and subcategories and and
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work all this stuff out and even then
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it's not the easiest thing in the world
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to do or whatever saw counting software
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you're using I have some software that
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we have developed over the last few
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months it's called bacon and we've just
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recently released it to a small group of
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test people the tests have been going
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great we're not quite open to the public
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it well depends when you watch this
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video but either way there's a button
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below that will take you to the bacon
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software website where you can learn
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more about it and either apply if we're
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still in beta testing or early adopter
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testing or if it's open to the public
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there'll be an opportunity for you to
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take a trial or to sign up or whatever
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but the point is below this video is a
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button where you can look at our bacon
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software which very inexpensively and
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very easily we'll help you track your
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cost of goods sold your direct operating
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expenses your labor expenses which will
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altogether give you prime cost on a
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daily weekly and monthly basis and the
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best part is if you're not taking
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inventory in your restaurant or if you
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hate taking inventory we have a
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patent-pending algorithm in our software
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that will give you a very very accurate
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number without taking inventory there's
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so much more on the software I can't
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even tell you about it but again click
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the button below and learn more about it
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I hope this helps explain these
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interesting cost of goods sold and
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direct operating expenses and I hope
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this video helps you make more money
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enjoy more profits and just enjoy
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operating your restaurant a little bit
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more sorry I went long have a wonderful
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day I look forward to seeing you next
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week with another one of these great
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training videos
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[Music]
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hey everybody Ryan here I really hope
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you enjoyed that video would you mind
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doing these three really quick favors
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first would you like this video wherever
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you're watching it there'll be a button
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for you to go ahead and click and like
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the video and then leave a comment
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somewhere so I could answer your
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question - would you go ahead and
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subscribe to this channel that way I can
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continually deliver you the newest
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updates every time I release the video
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and then three I'd like to give you
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something if you're the kind of person
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who really wants to get ahead in life
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faster I have a 90 day planner here that
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I'd like to give you I use this planner
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everyday in my business and actually I
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think this is one of the reasons why I'm
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able to get as much done as quickly and
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as efficiently as I am able to see every
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year when I sit down to plan out my year
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I sit down and I do four of these 90 day
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planners because I believe that we can't
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get as much done in a month as we think
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we can but we can get a lot more done in
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three months than we think we can and so
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I've developed a system I call it my
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90-day planner system where you can
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achieve just about any goal you want in
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90 days if you follow this and I'd like
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to give it to you completely free like I
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say this is on my desk every single day
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and I use it in my business and I teach
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my clients how to use it and I'd like
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for you to have it for free all you have
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to do is head over to the restaurant
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boss comm forward slash gol gol again
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that's the restaurant boss comm forward
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slash goal and then just give me your
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first name and email address and I'll
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send this right over to you all four
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pages until the next time I see you go
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out every day and improve the lives of
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your customers your employees your
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vendors and of course your family
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