Discussing Cost Versus Price
Guest post from Ronnie Chastain at Charles Pace & Associates
I have been in the food service business for over thirty years. And having owned my own restaurant for twenty five years, I feel qualified to relay this important information about food service industry equipment. I'm going to tell you what you need to know about cost versus price. People often interchange the terms, but it’s important to recognize the significant difference between the two.
If a product you buy is less expensive than its competitors, that doesn’t mean you (or your business) saves money in the long run. Sometimes, perhaps most times, you end up spending more, in part because of time and efficiency lost to a mediocre product. Or, you could potentially spend twice as much as you’d originally intended because you have to buy a replacement for that first purchase. OUCH.
So what’s the difference between cost and price?
Cost = what you stand to lose in time, efficiency, and customers if you don’t consider your return-on-investment.
Price = the sticker price of what you’re buying.
That’s what it comes down to for most major purchase decisions: return on investment. Where do you gain the biggest bang for your buck? For businesses, the purchase of a product should reflect how it improves a process or system. In the end, if there is a significant cost-savings in personnel time or improved staff efficiencies, it’s worth the extra money up front for the long-term benefits.
Let me give you an example using one of the items I sell: Beverage Air prep tables. These are a great example of a product where cost versus price is a huge factor. Let’s answer the following question: What do you stand to lose?
One of the key elements of the food service operator. Without having a unit that will hold a constant temperature, you will be throwing away spoiled food. A loss of four packages of pre-packed roast beef equals $6.00. A loss of a pan of olives and sliced cucumbers equals $3.50. The total loss for one shift equals at least $10.00 a day or $60.00 dollars a week or $3,120.00 a year. Multiply that by two shifts, you have a loss of $6,240.00 a year.
Getting your product out of the kitchen and to the table quickly is a must. If your customer orders a grilled chicken salad, and all the ingredients are in the prep table, your staff can create the salad and deliver it in an efficient manner. You have a happy customer. Without an efficient prep table, the customer has to wait and becomes unhappy. The biggest loss (that is also the hardest to recover) is losing a customer because of slow service. Managers give away free meals to hopefully repair the damage done by poor service. You might have to give away three salads a day, at $7.95 a salad, which would equal $23.85 a day or $143.10 a week or $7,441.20 a year. Multiply that by two shifts, you have a loss of $14,882.40 a year.
Here is how these two factors look on paper. Quite an eye-opener!
Take into consideration the cost of purchasing a product that appears to be a "good deal." The higher price of a quality product will, in the long run, build a greater return on investment, in money, time, and customers.
Questions about cost versus price on KaTom products? Contact one of our friendly customer service representatives for personalized assistance.
Ronnie Chastain is a restaurant industry veteran who has been in the food service business for more than thirty years as a restaurant owner and general manager. He now works as a representative for several restaurant equipment lines.