Optimal Inventory Level

You want to run your restaurant like a well-oiled machine, and the best way to do that is with a close eye on inventory. Determining your optimal inventory level allows you to minimize food waste and ensure that you are not literally throwing your money away on unused food and supplies.

If you’re not determining your restaurant’s optimal stocking level, your business could be losing out on hundreds of dollars per week. Keeping stock levels higher than necessary increases food waste, which in turn costs you more money.

If your stock is too low,  you’ll find that you’re constantly disappointing guests by having to tell them that you ran out of their favorite dish. Or, your chefs will be forced to skimp on key, flavor-enhancing ingredients that make your food delicious.

Follow the optimal inventory level formula below to make smarter decisions when stocking your restaurant.

Optimal Inventory Level Formula

Before we can get to the number-crunching, you’ll need to gather two important pieces of information:

  • What is your business’ average monthly food sales? This refers to the entire total of money that is brought in from customer purchases.
  • What is your business’ food cost percentage? That is the ratio between the cost of raw ingredients in your dishes and how much your restaurant generates in revenue from those dishes. If you’re wondering what your ideal food cost percentage should be, according to RestaurantReport.com, “a profitable restaurant typically generates between a 28% and 35% food cost.”

Once you have those figures, you can plug them into the optimal stocking level formula, which looks like this:

Average Monthly Food Sales x Food Cost  divided by the number of days in the month

For example, if your average food sales per month totals $30,000, and your food cost percentage is 30%, the first part of your equation will be:

($30,000 monthly food sales x 30%) = $9,000 per month of food usage

Then, let’s say the month that you are calculating has 30 days. Divide the monthly total of food usage by 30 for the second part of your equation:

$9,000/30 days = $300 per day of food usage

This number represents your daily optimal inventory level.

Based on the calculations in this example, your goal when stocking your restaurant is to stay right around that $300 per day figure. This number is vital to your business’ success, as it lets you know precisely how much inventory you need to keep the restaurant running smoothly without tying up your assets or leaving your stock vulnerable to theft or waste.

The optimal stocking level equation will reveal the absolute sweet spot of inventory levels. Being acutely aware of this number also allows you to maintain a keen eye and easily detect any issues with waste or stock leakage as your business moves forward.

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How to maintain optimal inventory levels

Don’t over order ingredients just to get bulk discounts

There are some exceptions to this rule, such as is if the item is non-perishable, has a long shelf-life, and you have a place to store it. But be careful about keeping things in your freezer long-term, since that will have an effect on the flavor. If you’re going to buy in bulk, keep meticulous records so you don’t forget what you have stored in the back room, and end up ordering more. Finally, you’ll still want to do this sparingly since you will be tying up today’s money on ingredients that you won’t use for a long time.

But do order extra if you anticipate an extra busy week

If a busy holiday week is coming up (like Mother’s Day), or if you own a pub and it’s March Madness season, you don’t want to be caught off guard when bigger crowds come in. Make sure to order extra ingredients for your most popular items.

Want more? Download our free guide: Inventory Management 101

Be creative with your menu

If you do find that you end up with more of an ingredient than you needed, you can ask the chef to create a special that will keep product moving. On the other hand, if you keep running out of a key item, but are afraid to order too much of it because it’s costly, perhaps you might only serve it as a special a couple of times per week.

Expect inventory to turn over a few times per month

A good rule of thumb to follow is to keep about five to seven days of fresh inventory on hand. That means you should be getting orders in about once per week. For items like bottled beer or wine, you should be turning over inventory one or two times per month.  

Use tools to keep track of daily inventory levels and sales

Software like Upserve Inventory helps automate the otherwise time-consuming task of restaurant inventory management. Every time you sell an item from your menu, Upserve Inventory deducts those ingredients from your stock in real-time. Plus, you’ll get alerts when inventory levels are running low, and can manage suppliers and invoices all in one location. Having your inventory tied to your POS sales is key to streamlining your system, and preventing food waste.

“All of the costing efforts and costing functions on Upserve are amazing, especially in regard to inventory,” says bartender and owner Eric Castro. “I feel like there’s so much of this admin stuff that’s just a pain, it can be kind of draining if you allow it to distract you from what you’re doing. Upserve does such a good job of making it so streamlined and so easy, you can knock that stuff out faster than if you were trying to do it manually or trying to do it on your own with an Excel spreadsheet. The sooner you can get done with that, the sooner you can go back to focusing on your guests.”

By learning how to calculate the optimal inventory level, you can reduce waste, optimize food costs, and improve your profit margins.  

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Written by   |  
Dawn Papandrea is freelance writer based in New York. Her work has appeared in numerous publications including Family Circle, WomansDay.com, and more. She loves trying new restaurants with her family and friends in her spare time.