The 80/20 Rule – The Rule You Need To Know

As bar and restaurant managers we spend a huge amount of our time looking at, and worrying about, our costs. Because we run on such fine margins, cost management is easily one of the most important factors -and biggest headaches- when managing a food and beverage location. Where are these losses coming from? How can I reduce my losses? How can I improve my profits?

Well, we’re here to tell you that there is a simple rule that can help you in managing and solving these age long restaurant manager headaches. That rule is the 80/20 rule. The 80/20 rule, or Pareto Principle, was discovered back in 1906 by Italian economist Vilfredo Pareto. Want to know how it works? Read on!

The 80/20 Rule

Roughly 80% of the effects come from 20% of the cause

This is the principle of the 80/20 rule. Put into restaurant terms this means that 80% of your losses come from only 20% of your product, or that 20% of your inventory accounts for 80% of your Cost of Goods Sold (COGS). There are many other ways this can be applied to bars and restaurants, but here we’re really focused on cost management and increasing profits.

Applying The 80/20 Rule To Your Business

Applying the 80/20 rule to you business and your inventory involves locating the cause, the 20%, so that you can better manage the effect, the 80%.

Use the 80/20 rule to determine the items that make up the 20% in your location. Select a few items from your 20% list and give them to all the departments and employees at your location, from managers and chefs, to floor staff and purchasing departments. Instruct these groups to keep a close eye on these specific items, focusing on getting a better purchasing price, reducing wastage during preparation, and up-selling them to customers to avoid wastage. Furthermore, conduct weekly inventories of only these items to see if you can reduce par levels to further reduce wastage and free up capital. Next month choose different items from your 20% list to focus on, and so on and so forth.

Knowing the 20% of your items that represent 80% of your costs -that’s over 3/4 of what you spend!- will allow you to focus on getting lower prices for these specific products, as well as focusing on reducing wastage and optimizing the ordering, storage, and use of these items.

Where Bevsight Comes In

Doing all that work, creating spreadsheets, inputting item prices, amounts, and costs takes a lot of valuable time out of your day (the 80/20 rule also applies to personal time management), really reducing our desire to undertake these tasks. Before you even do all of this you need to take a comprehensive inventory; another time consuming task. Fortunately, Bevsight takes all of this mundane work out of your hands! Bevsight will tell you which items, the 20%, make up the 80%. It will prepare the inventory list for these items so your staff only need count the items that the solution recommends.