If you run a restaurant, you already know how important it is to keep food costs under control. But what many owners don't realize is just how much your inventory system affects those numbers.

Inventory isn't just a list of what's in your freezer or pantry. It's how you figure out what was used, what might have been wasted, and how much your food is really costing you. If your inventory is off, your food cost numbers will be too - and that can hurt your profits without you even noticing.

There are two main ways to track inventory - perpetual and periodic. Each one works differently and can give you very different results when it comes to cost tracking. Some restaurants use manual counts once a week or month. Others use systems that update automatically every time something is sold.

Before diving deeper, it's important to understand the two basic ways restaurants track inventory- perpetual and periodic. These are just different systems for keeping tabs on the ingredients and supplies you have on hand - and how you figure out what's been used.

Perpetual Inventory System
A perpetual inventory system keeps track of your stock in real time. That means every time you sell a menu item, the system automatically subtracts the ingredients from your inventory. For example, if you sell a burger, the system will deduct one patty, one bun, and so on.

This kind of system usually works with your POS (point-of-sale) software and may also be connected to your suppliers or kitchen management tools. It gives you an up-to-date view of what's in stock without needing to count items every day.

Perpetual systems can be more accurate because they update constantly. They're great for spotting issues like missing stock or food waste early on.

Periodic Inventory System
A periodic inventory system is much simpler. Instead of updating inventory all the time, you check what you have on hand at regular intervals - usually weekly, bi-weekly, or monthly. Then, you compare that count to your previous count to figure out what's been used.

This method is more common in smaller restaurants or those without digital tools. It's cheaper and easier to start, but less precise since it relies on physical counts that can be missed or rushed.

Both systems have their place. The key difference is how often they track usage - perpetual tracks continuously, while periodic tracks occasionally. This difference plays a big role in how accurate your food cost numbers turn out to be.

Understanding how perpetual and periodic systems work isn't just about definitions - it's about how these systems actually function day to day in your restaurant. The way each system tracks inventory affects how you manage your kitchen, place orders, and control food costs.

Perpetual Inventory - Real-Time Tracking
With a perpetual inventory system, every time you sell a dish, the ingredients are automatically subtracted from your inventory. This is possible because the system is connected to your POS (point-of-sale) and recipe database. For example, if you sell a chicken sandwich, the system knows that 5 oz of chicken, one bun, lettuce, and sauce were used - and it deducts those amounts right away.

This means you always have a current view of your stock levels. You can log into your system at any time and know exactly how much chicken, lettuce, or rice is left. It also helps spot problems quickly. If your reports say you should have 20 pounds of cheese, but your fridge only has 10, you can start asking questions before it becomes a bigger issue.

Periodic Inventory - Snapshot Tracking
In contrast, a periodic inventory system works by checking stock levels at set times - usually once a week or month. You (or your staff) physically count everything in your coolers, freezers, and dry storage. Then, you compare that number to the last count and your purchase records to figure out how much was used.

This method is much more manual and doesn't give you updates in between counts. You're essentially guessing what was used based on what's missing from your shelves, which leaves more room for error, especially with spoilage, theft, or over-portioning.

In short, Perpetual inventory gives constant, automatic updates, while periodic inventory only gives updates when you count. This difference has a major impact on how accurately you can track food costs and react to problems in your kitchen.

One of the biggest reasons to choose the right inventory system is its effect on food costing accuracy. Food cost is a critical number for any restaurant - it tells you how much of your revenue is being spent on ingredients. If this number is off, even by a small amount, it can lead to poor pricing decisions, unexpected losses, and tight margins that make it hard to stay profitable.

Perpetual Inventory - More Detailed and Timely Data
With a perpetual inventory system, your ingredient usage is updated in real time. Since the system deducts items as they are sold, it gives you a much clearer and more immediate picture of what's been used. This helps you calculate your food cost more accurately and more often - even daily, if needed.

For example, if you notice that your cheese usage is higher than expected, you can investigate quickly. Maybe portion sizes are too large, or there's waste during prep. Either way, you can catch it right away rather than discovering the issue weeks later.

Perpetual systems also help identify theft, spoilage, or delivery mistakes, all of which can quietly increase your food cost if left unchecked.

Periodic Inventory - Broader Averages, More Guesswork
Periodic inventory systems, on the other hand, rely on physical counts done weekly or monthly. Your food cost is calculated only after these counts are complete, which means you're often reacting to problems after they've already caused damage.

Because of this delay, errors can stack up - especially if items were wasted, spoiled, or overused in between counts. Since you're only looking at a snapshot in time, it's harder to tell exactly when things went wrong or what caused the spike in cost.

Cost of Goods Sold (COGS) is one of the most important numbers in your restaurant's financial picture. It shows how much you spent on the ingredients used to make the food you sold. In other words, it's your food cost tied directly to sales. But how you track inventory - perpetual or periodic - makes a big difference in how accurate your COGS turns out to be.

Perpetual Inventory - Continuous COGS Tracking
With a perpetual inventory system, COGS can be updated in real time. Since your inventory is being adjusted automatically every time a dish is sold, the system can calculate how much product was used - and its cost - without needing to wait for a manual count.

This means you can check your food cost and COGS as often as you like. You'll be able to see trends right away, like if your chicken dishes are becoming more expensive to make or if ingredient prices are creeping up. It also gives you a chance to fix problems before they grow, like waste or over portioning.

Periodic Inventory - COGS by Estimation
With a periodic inventory system, you calculate COGS using a basic formula -

Beginning Inventory + Purchases - Ending Inventory = COGS

This works, but it only gives you a summary after the fact. If you're only counting inventory once a month, then you're only calculating COGS once a month too. That means you could be looking at outdated information when making pricing or ordering decisions.

Also, if your ending inventory count is wrong, the whole calculation falls apart. A missed box of produce or a rushed freezer count can make it look like you used more - or less - than you really did.

To stay on top of food cost and protect your profit margin, your COGS needs to be accurate and timely. Perpetual inventory supports that with real-time data, while periodic inventory gives you less frequent - and sometimes less reliable - snapshots.

Your inventory system doesn't just help you track ingredients - it plays a major role in your financial reporting and day-to-day decisions. Whether you're reviewing a profit-and-loss (P&L) statement, planning your food orders, or deciding if menu prices need adjusting, the accuracy of your numbers matters. And your inventory method - perpetual or periodic - can either help or hurt that accuracy.

Perpetual Inventory - Real-Time Visibility for Smarter Choices
With perpetual inventory, your reports are always current. Since the system is constantly updating stock levels and usage, your COGS and food cost figures stay up to date, too. This gives you the power to make better, faster decisions - without waiting for a month-end count.

For example, if you notice your food cost creeping up midweek, you can dig into the data immediately. Maybe it's a supply price change, or maybe portion sizes are drifting. Either way, you can respond before it impacts your weekly profit.

Also, perpetual systems can make financial reporting more consistent. If your accountant or bookkeeper needs monthly reports, you don't have to rush to count everything first. The numbers are already there.

Periodic Inventory - Delays and Data Gaps
With a periodic system, your financial reports are only accurate after an inventory count has been done. Until then, your COGS and food cost numbers are just estimates. This creates gaps in your reporting and slows down your ability to react to changes.

Let's say your sales dropped last week, and you want to know if waste or theft played a role. If you're using periodic inventory, you might not get a clear answer until your next scheduled count - by then, the damage is done.

In short, perpetual inventory offers better insight for daily and weekly decisions, while periodic inventory can leave you flying blind between counts. If you want faster, more informed decision-making, the system you choose really matters.

Choosing between a perpetual or periodic inventory system isn't just about accuracy - it also comes down to your restaurant's budget, staff resources, and comfort with technology. Each system has its own setup needs and costs, and understanding these can help you pick the right fit for your operation.

Perpetual Inventory - Higher Tech, Higher Startup Costs
A perpetual inventory system usually requires technology - often software that integrates with your POS system. These tools help track sales and subtract ingredients automatically, but they come with a price. You may need to invest in software, ongoing subscriptions, and possibly training for your staff.

There's a learning curve, but many operators find that the time saved in manual tasks is worth it. Instead of having a manager spend hours each week counting stock and entering data, the system does most of it for you. This can help reduce labor cost over time by freeing up staff for other work, like managing prep or service.

However, perpetual systems rely on proper setup and consistent use. If your recipes aren't entered correctly or staff skip logging waste, the system loses accuracy. It requires more upfront attention to detail, but rewards you with ongoing insight.

Periodic Inventory - Simple, But Time-Heavy
Periodic inventory systems don't require fancy software. Many restaurants track inventory with spreadsheets, pen and paper, or simple apps. While this keeps costs low, it demands more manual labor - especially during inventory counts.

Managers or staff must set aside time to count every item, and this process is often rushed or skipped during busy periods. It can lead to errors and stress, especially in smaller teams. Over time, these manual efforts may actually increase labor cost, even if the system looks cheaper on the surface.

In the end, perpetual inventory costs more upfront but can save time and money long term, while periodic inventory is low-tech but labor-intensive. Your choice depends on your budget, team size, and how much time you can dedicate to tracking inventory properly.

Now that you understand how perpetual and periodic inventory systems work, the next question is - Which one fits your restaurant best? The answer depends on a few important factors - your budget, your team, how much control you want over food costs, and how complex your operation is.

When Perpetual Inventory Makes Sense
If your restaurant is high-volume, has a large or varied menu, or deals with frequent supply orders, a perpetual inventory system can be a smart investment. It gives you real-time tracking, more accurate food cost data, and better control over waste and theft.

Restaurants that already use a POS system with inventory features built-in are in a good position to make the switch. While the setup takes time - inputting recipes, training staff, linking supplier data - the payoff is more accurate numbers and quicker decisions.

It's also a good fit if you're trying to lower waste, tighten margins, or improve forecasting. The system helps you see trends early, so you can make changes before small problems turn into big losses.

When Periodic Inventory Is a Better Fit
On the other hand, if you're running a smaller operation with a limited menu and tight budget, periodic inventory might be enough. It's simpler, more affordable, and doesn't require much tech to get started.

For restaurants with low inventory turnover or steady supplier relationships, weekly or biweekly counts may provide enough insight to stay on top of costs - especially if your team is already stretched thin.

That said, periodic systems require discipline. Skipped counts, rushed calculations, or outdated spreadsheets can lead to unreliable food cost numbers over time.

In short, choose a system that matches your size, goals, and resources. Perpetual inventory offers more control and accuracy, while periodic inventory is easier to maintain with limited staff or tools.