Knowing your average days on hand for inventory allows you to understand the turnover rate for your restaurant in terms of length of time. Now you have your inventory turn rate, this can be used to compare your restaurant to other similar concepts in your market.īut you can also use your inventory turnover rate to calculate the average days on hand for your inventory.
#INVENTORY TURNOVER RATE HOW TO#
Related post: How To Calculate Your Restaurant Inventory Par Levels How Do You Calculate Average Days in Inventory? No matter which ratio you decide to use, it’s important that when comparing your rate to others, you specify whether it’s COS or Total Sales. Total annual sales include the company’s markup and this can often make it look like your restaurant is turning inventory faster than you really are.
Most restaurateurs prefer the COGS turnover formula because it does not include markups. The alternative formula for calculating turnover uses the total annual sales of your restaurant and divides it by your average inventory. Average Inventory = (Beginning Inventory + Ending Inventory)/2.Inventory Turnover = COGS / Average Inventory.The first, more preferred method, is to calculate your turnover rate based on Cost of Goods Sold (may also be referred to Cost of Sales or Cost of Revenue on your restaurant’s income statement).
There are two accepted ways to calculate your restaurant’s inventory turnover rate. Your ITR is used to help assess how well your restaurant is operating in comparison to other concepts and the industry as a whole.Īn ITR also provides you with valuable insight into how your business is doing with inventory, sales, and cost. What is Restaurant Inventory Turnover Rate?Ī restaurant’s inventory turnover rate (also called ITR) is how many times your restaurant sold its total average inventory during a period of time. You should have a thorough understanding of your inventory turnover rate, how many days its held on average, and how that compares to others in your market.
You have a million things to think about every day and inventory management isn’t always a top priority.īut understanding your inventory is vital to the success of your restaurant. Managing your restaurant’s inventory sometimes get pushed to the backburner. Or how many days you’re holding inventory? Do you know if you’re using your inventory efficiently?
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