Chef Food Cost Bonus Program
Creating a Bonus Program for your Chef
Creating a bonus program for your Chef is an excellent idea, but it can take some serious thought to implement correctly. The goal of any such program needs to be to benefit the business and the Chef. If the bonus program only benefits one or the other then it is a failed system.
Designing a bonus program depends upon many variables. What is the current status of your business and what are your current goals? A new business will have a different program than an established business. And an operation with a consistently good food cost will have a different program than one which is experiencing food cost problems.
Define Your Restaurant and Kitchen Goals
You need to first define what your primary goals for your business are at this time. Are you looking to fix a problem or maintain the status quo? Generally speaking, there are two types of bonus programs that I am aware of. One is a bonus program based upon food cost. And the other is a bonus program based upon EBITDA where you compare the total costs of the kitchen against your bottom line.
Food Cost Based Bonus Program
A bonus program based upon food cost is an excellent choice for businesses which are experiencing food cost problems. This gives the chef the incentive to find ways to correct the many faceted issues which go into analyzing food cost problems. If you choose to do a bonus program for your chef based upon food cost, then you'll want to be involved in verifying his/her inventory, as well as having the final say on menu development and pricing.
Problem with Food Cost as a Gauge of Health
The problem with doing a bonus program based upon food cost is that food cost alone is not an accurate analysis of the health of your restaurant. For instance, if your chef's menu has nothing on it but BLT sandwiches being sold at $6 a pop with a 25% food cost, then you will be able to attain an excellent food cost. However, your revenue to the bottom line will not be very good ($4.50/order margin). On the other hand, if your chef sells nothing but lobster at $40 with a 50% food cost, the food cost is going to look awful, but the money to your bottom line will be significant ($20/order margin).
I would suggest using a food cost based bonus program for restaurants that have a legitimate food cost problem. And I would suggest using a bonus program based upon EBITDA for restaurants which have a healthy operation and a consistent food cost. Ultimately, any bonus program for a chef needs to have the result that the business is affected in a positive way.
EBITDA Based Bonus Program
A bonus program for a chef based on EBITDA would be designed by determining the total costs of the kitchen as a percentage of EBITDA. For the kitchen operational costs you would need to include everything that the chef has control over such as kitchen labor and cost of food, But exclude those things which he has no control over such as cost of the front of the house staff, equipment, lease/mortgage, utilities, etc. because those costs are part of the EBITDA against which the kitchen costs are compared to. So, set a budget for the percentage of EBITDA which the kitchen costs should attain.
Let’s apply the EBITDA bonus program to an example. Going back to the food cost example, if the chef ran BLT sandwiches he would have a fantastic food cost but because of the low margin there would not be much revenue to the bottom line. This would make a minimal impact upon the percentage of savings in kitchen expenses compared against the bottom line, which would affect his bonus by giving him a small bonus. But, if he sold only lobsters, even though the food cost would look bad, the margin on the higher priced sales would generate more income to the bottom line which in turn would decrease the overall percentage of kitchen operational expenses and result in a larger bonus. This model is the most fair because it accurately compares the kitchen to the bottom line and puts the food cost into proper perspective.
Bonus Program Follow-up and Modification
I think that any incentive program should be based upon a duration of six months or one year. This will give time to show a history to work out the bugs and to show seasonal changes of business over time. Once a term has been established, whether six months, a year, whatever, it should be made clear to both parties that the bonus program will be reviewed and possibly modified at the end of that term. This will give the opportunity to fix what is wrong with the program.
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Antonia, I couldn't find any exercises, but here are a few links I found which may help:
http://www.chefs-resources.com/FoodCostCalculation
http://www.chefs-resources.com/FoodCostTools#Inventory%20Calculator
http://www.chefs-resources.com/Food-Inventory-Taking-Inventory
http://www.chefs-resources.com/Food-Cost-Management-and-The-Forty-Thieves-of-Food-Cost
http://www.chefs-resources.com/Plate-Cost-How-To-Calculate-Recipe-Cost
http://www.kendallhunt.com/uploadedFiles/Kendall_Hunt/Content/Higher_Education/Uploads/McVety_Ch7_4e.pdf
I have my son who is studying for a chef. He has a mathematical learning difficulty so he needs some exercises to woork on purchasing,cost&control,Basic costings and book keeping. Is there any chance to help. His exams are on the 3rd of june. Thanks Antonia
Never really heard of the bonus program before, but it is a great idea for the new and upcoming chefs, im not on a bonus scheme, its all about the kpi's to keep the yearly package with my boss. which i can understand
When thinking about EBITDA based bonuses, keep in mind what the acronym stands for "Earnings Before Interest Taxes Depreciation and Amortization". An operator must carefully consider what Interests, Taxes, Depreciation and Amortizations are still to be paid, and what their operating cash needs are. Many food service establishments are operating on slim marginal incomes with loans to be paid, assets to depreciate and expenses that are amortized. This is why strict, strategic, and conservative annual business planning/ budgeting is necessary. Any bonus program introduced to this mix should be well thought out...perhaps discussed with an accountant if you have one, a consultant if available, even a lawyer if the bonus program is part of a hiring contract.
I would agree that a bonus based on EBITDA would better award the chef for those areas in which the chef has control. To do this, the business plan would have to be defined by a Kitchen Budget and Dining Room Budget. I would not suggest using a % of EBITDA as the starting point for a bonus, but first look at the dollars. Is there enough money to even offer the bonus? If your revenues fall short, but your percentages remain on track, the dollar amount of EBITDA is reduced there by reducing the amount of cash available for the ITDA. Financial security is first and foremost, otherwise there will no bonus period. The operator must first be certain the money to do business is there (i.e. EBITDA was at or higher than budget) then make the determination what factors play into the bonus. Look at the Kitchen performance and Dining room performance and give award where award is due. It is my opinion and preference that this type of bonus would be a monthly program. Give award when award is due.
Thanks for the excellent comment Magic! I'm still looking at giving more details on how to implement the EBITDA method.
First might I say an exceptional article! As a former "Master Chef/General Manager" of a cooking establishment... Where where you all of my life? :) This is great beyond my wildest thoughts. I so love the comparisons that drive to the bottom line... and I have mixed feelings between a six mo v yearly review, but feel that this should be based on the local and type of establishment. Well said and well done:)