Inventory turnover is a key indicator for restaurant management, as it reveals how efficiently products and supplies are bought, used and sold.
Good inventory turnover means products don't sit in storage for too long, avoiding losses from expiration or spoilage. High turnover, in turn, indicates that capital is being used efficiently, generating more profit for the restaurant.
In this article, understand what inventory turnover is, learn how to do the calculation and check out tips for good management. Read on!
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What is inventory turnover?
A restaurant's inventory holds all the supplies used to make the dishes and drinks. Inventory turnover is related to how quickly those supplies move.
It works like this: products come into inventory, are used in production and then sold to customers, freeing up space for new items to come in.
This way, each ingredient is bought and used according to demand, and needs to be restocked when it's running out to ensure availability. On the other hand, if an item doesn't sell, it can sit in inventory for a long time and end up generating waste and financial losses.
So it's important to know how to calculate inventory turnover to manage the restaurant well. This indicator helps identify how many times over a period — usually a year — the supplies turn over and how long, on average, they sit idle.
With this information in hand, managers can build strategies to optimize processes and get better business performance. Below, see the step by step to calculate your restaurant's inventory turnover.
Leia também: How do you manage restaurant inventory?
How to calculate inventory turnover?
As we've seen, inventory turnover determines how many times inventory is renewed per period.
Normally, the calculation is done considering a year, but you can do it for the month, if that makes sense for your analysis — this can be useful for supplies with high turnover, for example.
To calculate inventory turnover, you need to divide total sales by average inventory. The formula is as follows:
Inventory turnover = Total Sales / Average inventory
First, you need to identify the total sales made in the period. It's important to point out that, in the inventory turnover calculation, the cost price is considered, not the final selling price.
For our example, let's assume that the sum of all sales for the year was R$ 60,000.
Then, calculate the average inventory using the formula:
Average inventory = (Beginning inventory + Ending inventory) / 2
The beginning inventory is the value of the inventory at the start of the period analyzed. The ending inventory is the value of the inventory at the end of the period analyzed. For example:
Beginning inventory = R$ 10,000
Ending inventory = R$ 20,000
Average inventory = 10,000 + 20,000 / 2
Average inventory = R$ 30,000 / 2
Average inventory = R$ 15,000
So the inventory turnover formula looks like this:
Inventory turnover = Total Sales / Average inventory
Inventory turnover = 60,000 / 15,000
Inventory turnover = 4 turns per year
This means that, over the period of one year, four inventory turns occurred. This value can also be used to identify the inventory turnover rate, which shows the average time to restock supplies.
Inventory turnover rate = Number of days in the year / number of turns
Inventory turnover rate = 365 / 4
Inventory turnover rate = 91.25
This means the average time to restock inventory is 91 days. Knowing the inventory turnover, the manager can assess whether the turnover rate is adequate or needs to be optimized. In the next topic, we'll see more about this. Keep reading to learn more!
Why is it important to know your inventory turnover?
Knowing what your inventory turnover is matters for making strategic decisions and getting better results in your restaurant.
A high turnover means the inventory is being used efficiently. A low turnover, on the other hand, indicates there are products sitting idle in inventory, which can generate losses and hurt the profitability of the business.
In restaurants, an inventory turnover between 5 and 10 times per month is generally considered healthy.
High inventory turnover
- The higher the inventory turnover, the more times it's restocked. That also means there's more effort involved with purchasing, storage, etc.
- If turnover is too high, stockouts can also happen, with a shortage of supplies to make some menu items, generating customer dissatisfaction and lost sales opportunities.
Low inventory turnover
- On the other hand, a low inventory turnover indicates you have a lot of supplies sitting idle, which is the same as money sitting idle. Your restaurant isn't selling as much as you're investing, and that's a warning sign for the financial health of the business.
- Supplies sitting too long in inventory can spoil, pass their expiration date and deteriorate. These losses hurt your restaurant's profitability, since you don't get a return on what was invested to acquire those supplies.
Ideal inventory turnover
Taking these aspects into account, it's clear there are many benefits to keeping a good inventory turnover in your restaurant:
- Fewer losses: There are no expired or spoiled products. With efficient turnover, you make sure everything is used before reaching the expiration date, optimizing your costs and avoiding losses.
- Lean inventory: A high turnover means fewer products in storage, freeing up space for other items and optimizing your inventory layout. This helps with inventory organization and makes management simpler.
- Working capital:By selling your products quickly, you free up capital for new purchases and investments, driving the growth of your business.
- Greater profitability: With fewer losses and working capital in motion, you increase your chances of achieving better financial results.
Below, check out some tips for keeping a good inventory turnover in your restaurant.
Tips for managing restaurant inventory
To manage inventory well you need to do an in-depth analysis of your supplies, track demand closely, identify trends and make continuous improvements to the menu. Learn more below!
1. Map out your supplies
Start by getting to know your supplies inside out. Identify which items move the most, which sell the least and which carry the greatest risk of loss.
You can calculate inventory turnover for each product category (for example, meats, cold cuts, dairy, drinks) to get a more detailed view of inventory management.
This detailed analysis will help you make strategic purchasing and storage decisions.
2. Monitor purchases closely
Make conscious purchases, based on your needs and on how products turn over. Keep track of your minimum and maximum inventory and plan your purchases in advance.
This way, besides keeping a healthy inventory turnover and ensuring the availability of every ingredient, you can also negotiate with suppliers to get better prices and payment terms.
3. Adjust the menu and create promotions
Analyze which dishes sell the most and which have the least demand. Use this information to adjust your menu, offering more options of the most popular dishes and reducing the offering or even eliminating those that sell less.
If you need to increase the turnover of a specific supply, create promotions to sell more and clear out the inventory. That way you avoid losses.
Learn more: Menu engineering: a complete guide to selling more
4. Monitor and evaluate
Inventory turnover is a continuous process that needs to be monitored and evaluated periodically. Use the indicators available to track your inventory's performance and map out improvement strategies.
It's important to track inventory turnover over time to identify trends and take corrective measures when needed.
This way you'll have more predictability and be prepared to face challenges or seize opportunities, boosting your results.
5. Adopt an inventory management system
Technology is your ally. Choose a restaurant system with automated inventory control for more efficiency in management.
These tools let you create recipe cards for menu items, track products coming in and going out, set expiration alerts and optimize the purchasing process, among many other features.
Get more efficiency in inventory management with EPOC
EPOC is a restaurant platform built to bring more speed to customer service, increase operational efficiency and simplify management. We offer POS, ERP, Analytics, self-service solutions and much more.
Our controle de estoque is automated and has all the features you need to manage inventory efficiently and reliably:
- Integration with the POS
- Stocktaking
- Inventory movement
- Recipe cards / COGS
- Recipes and Recipe production
- Purchases and orders
- Goods receiving
- Orders vs. NFe monitor
- ABC Curve report
- Expiration control
Get the best solution on the market for restaurant inventory control. Fale com nossos consultores.
