Target-vs-actual comparison in hospitality: formulas, examples and a monthly routine

The month is over and the management accounts are on the table: cost of goods at 30 percent. The plan was 27. Three percentage points may not sound like much, but on 56,000 euros of monthly revenue they add up to 1,680 euros. The only question is: where exactly did the money go? A target-vs-actual comparison (in German: Soll-Ist-Vergleich) answers exactly that. It shows where your business deviates from plan, how big the gap is and where you should look first.

In this guide you will learn how a target-vs-actual comparison works in hospitality, which formulas you need and how to apply it with two worked examples, from the month-end figures down to a single bottle of gin.

1. What is a target-vs-actual comparison?

A target-vs-actual comparison is a basic controlling method: you set planned or expected values (target) against the values you actually achieved (actual). Haufe Akademie describes five steps: define target values, collect actual values, compare variances, analyse causes and derive measures.

The difference between plan and target matters. The plan is what you set out to do at the start of the month, for example 60,000 euros of revenue. The target is the value you should have reached given your actual performance. If you only made 56,000 euros instead of a planned 60,000, your cost of goods should be correspondingly lower. Overlook this difference and you will underestimate variances or look in the wrong place.

2. The two levels of a target-vs-actual comparison in hospitality

In a hospitality business, the comparison pays off on two levels that build on each other:

• KPI level: at month end you compare revenue, cost of goods, labour costs and other costs with your plan. This level tells you whether something is going wrong.
• Stock level: for each item you compare how much should have been used according to the POS and recipes with how much was actually used according to the stocktake. This level tells you where something is going wrong.

Many businesses stop at the first level. They may see that the cost of goods ratio is too high but do not know whether gin, draught beer or the kitchen is to blame. Only the second level turns a bad number into a concrete task.

3. Where the target comes from: plan, recipe and POS

A target-vs-actual comparison is only as good as its target. In hospitality, the target has three sources:

• Your plan: target values, for example a 27 percent cost of goods ratio or a 32 percent labour cost ratio, derived from previous years or your costing.
• Your recipes: they define how much of each ingredient goes into a dish or drink. Without a recipe there is no target per item.
• Your POS: it shows how often each product was sold. Sales times recipe quantity gives you target usage.

Take a gin and tonic: the recipe calls for 4 cl of gin, 0.2 l of tonic water plus lime and garnish. At a purchase price of 18.00 euros for a 0.7-litre bottle, 4 cl of gin cost 1.03 euros, plus 0.85 euros for the tonic and 0.20 euros for lime and garnish. That makes 2.08 euros cost of goods. At a gross selling price of 12.00 euros, 10.08 euros net remain after 19 percent VAT, so the cost of goods ratio is around 21 percent. That is your target for every gin and tonic sold.

How to derive the cost of goods for your entire range is shown in our guide to calculating cost of goods. For the target-vs-actual comparison one thing matters most: the recipes must match what really happens behind the bar and in the kitchen.

4. Calculating a target-vs-actual comparison: the formulas

For the KPI level you need two formulas:

• Absolute variance = actual − target
• Relative variance in percent = (actual − target) ÷ target × 100

For the stock level you need three more formulas:

• Actual usage = opening stock + deliveries − closing stock
• Target usage = sales × recipe quantity
• Variance = actual usage − target usage, in euros multiplied by the purchase price

If actual usage is higher than target usage, stock has gone missing that was never rung up. If it is lower, the POS shows more sales than the stocktake shows usage. That happens, for example, when a recipe specifies more than is actually poured, or when a delivery was not recorded.

5. Worked example 1: cost of goods at month end

A restaurant with a bar plans 60,000 euros of net revenue for the month and a cost of goods ratio of 27 percent. Planned cost of goods are therefore 16,200 euros. In reality the business takes 56,000 euros and its cost of goods come to 16,800 euros.

• Plan vs actual: 16,800 − 16,200 = 600 euros more cost of goods than planned. That looks manageable.
• Target vs actual: on 56,000 euros of revenue, 27 percent would have meant only 15,120 euros cost of goods. The real variance is therefore 16,800 − 15,120 = 1,680 euros, or around 11 percent.
• Cost of goods ratio: 16,800 ÷ 56,000 = 30 percent instead of 27 percent.

The lower revenue should actually have reduced cost of goods by 1,080 euros. In a simple plan-vs-actual comparison, this effect hides most of the problem. That is why you should always convert the target to your actual performance. The same principle applies to labour and other cost ratios.

6. Worked example 2: stock usage per item

The 1,680 euros from example 1 do not yet tell you where to start. For that you go down to the stock level. Take this restaurant's bar, with these figures for London dry gin in one month:

• Opening stock 4.20 litres (6 bottles), deliveries 8.40 litres (12 bottles), closing stock 4.85 litres
• Actual usage: 4.20 + 8.40 − 4.85 = 7.75 litres
• Sold according to the POS: 160 gin and tonics with 4 cl each and 10 Negronis with 3 cl of gin each
• Target usage: 160 × 0.04 + 10 × 0.03 = 6.70 litres
• Variance: 7.75 − 6.70 = 1.05 litres, which is 1.5 bottles or 27.00 euros cost of goods

Converted into drinks, 1.05 litres are just over 26 gin and tonics that were never paid for. At a selling price of 12.00 euros, that equals around 315 euros of gross revenue. For the two other items in the report: the aperitif liqueur (1.0-litre bottle, 15.00 euros purchase price) has a target usage of 4.0 litres, but 4.5 litres were used. The half bottle costs 7.50 euros. For the prosecco, target and actual match at 6.0 litres each. In total, 34.50 euros of stock are missing across these three items.

The gin is 1.05 litres or around 16 percent above target, the aperitif liqueur half a litre or 12.5 percent. Scaled up to a range of hundreds of items, many small gaps quickly add up to the large amount from the month-end figures.

7. Tolerance limits and causes of variances

Not every variance calls for action. That is why controlling works with tolerance limits. The Swiss specialist portal WEKA cites tolerances of ±5 percent of the planned value as typical and stresses that the right limit varies by cost type, industry and company philosophy. For your bar this means: decide for each product group when you will follow up. In the example above, gin and aperitif liqueur are well above 5 percent, while the prosecco is unremarkable.

If a variance exceeds your limit, these are the most common causes in practice:

• Over-pouring without a jigger or with a generous eye
• Drinks that were not rung up, such as staff drinks or drinks on the house
• Breakage and spoilage without an entry in the waste log
• Mis-keyed sales at the POS, for example the wrong item
• Recipes that are out of date
• Incomplete delivery records or counting errors in the stocktake

The last three points are not real losses but data errors. Check them first before looking for reasons within the team. How to document losses properly is shown in our guide to shrinkage and breakage.

8. The target-vs-actual comparison as a four-step monthly routine

The comparison only has an impact when it runs regularly. A simple month-end routine looks like this:

1. Set the target: plan your target values for revenue and cost ratios, keep your recipes up to date and set your tolerance limits per product group.
2. Record actuals: do the stocktake at month end, check that all delivery notes are booked as deliveries and pull the sales figures from the POS for the same period.
3. Assess variances: calculate variances in quantity, euros and percent and sort them by euro amount. The largest amounts come first.
4. Take action: find the cause of every variance above your tolerance, put a concrete measure in place, such as jiggers or a training session, and check the following month whether the variance has shrunk.

The fourth step is the most important. A comparison that only collects numbers costs time. One that leads to action saves money.

9. Five common mistakes in target-vs-actual comparisons

• Plan instead of target: if you do not convert cost of goods to your actual revenue, you underestimate variances, as example 1 shows.
• Outdated recipes: if the pour size or the purchase price has changed, the target is no longer correct.
• Mismatched periods: the stocktake date and the POS period must match exactly, otherwise you create variances that do not exist.
• Only one total: a variance across the whole range does not show you where to start. You need figures per item.
• Mixing gross and net: cost of goods and revenue must both be viewed net, otherwise VAT distorts your ratio.

With these points in mind, your variances become reliable. What to do if gaps in stock still show up after the count is covered in our guide to stock discrepancies.

10. Target-vs-actual comparison with BarBrain: POS, recipes and stocktake connected

Done by hand, a target-vs-actual comparison at item level takes a lot of work. You have to retype POS reports, multiply each sale by its recipe, add up stock levels and reconcile delivery notes. BarBrain connects these steps. With the POS integration, recipes break your sales down into ingredients and give you target usage. The stocktake provides the stock per area, and deliveries are added via the delivery note scanner. From this BarBrain calculates actual usage and shows you variances per item in quantity and euros, analysed by period.

The foundation for this is recipe management: there you maintain recipes for food, drinks and cocktails, see the cost of goods ratio per recipe, and purchase prices update automatically from purchasing. That keeps your target current without you having to maintain spreadsheets.

If you run several outlets, each outlet is its own account with its own areas. Stocktakes run separately, and in the admin overview you compare outlets with each other, for example on cost of goods ratio and shrinkage. That way you quickly see which location deviates from target and where a closer look pays off.

Want to see how a target-vs-actual comparison works in BarBrain? Book a demo and we will show you the report in 30 minutes.

11. Frequently asked questions