Cost of sales ratio applies directly to the cost of goods sold. It provides a metric for comparing a hotel’s expenses from sales activity against total revenue. It is an important hotel KPI used to give revenue managers a better idea of how a hotel’s food and beverage operation performs. Profitable food and beverage operations should seek to fall in the 25 to 35 percent range for this metric.
What is Cost of Sales Ratio For?
Cost of sales ratio is used to examine food and beverage operations in a hotel. Understanding the profitability of a hotel’s food and beverage operations allows revenue managers to make decisions that can improve operational efficiency and increase profitability. Cost of sales ratio is usually calculated on a monthly basis. Regular monitoring of a hotel’s cost of sales ratio is essential to keep a property on a profitable trajectory.
Benefits of Cost of Sales Ratio
By measuring the relationship between selling costs and the end value of the sale, revenue managers can see how much actual revenue is gained per sale. It also provides data on how much of the final value from sales goes back to covering costs that a hotel takes on to make a sale.
How is Cost of Sales Ratio Calculated
Cost of sales ratio is calculated by dividing the total costs of goods sold by total sales. The final calculation is typically multiplied by 100 to give revenue managers a percentage ratio. The total cost of goods sold factors in variable costs and fixed overhead expenses.
Example of Cost of Sales Ratio Calculation
Total Costs of Goods Sold = $50,000
Total Sales = $150,000
Cost of Sales Ratio = ($50,000 (Cost of Goods Sold) / $150,000 (Total Sales)) x 100 = 33.3%