How to Account for Discounts & Comps

Restaurants have always had discount and complimentary sales transactions. However, as competition for diners has become more intense, many restaurants are engaging in more and more promotional and marketing tactics that use some sort of a discount or get-something-for-nothing incentive to attract new customers and increase the frequency of visits of regulars.

Historically, discount and complimentary ("comp") transactions of nonpizza operations made up a relatively small, often insignificant portion of a restaurant's gross sales. When the total dollar amount of discounts and comps is low, the method used to record discounts and other off-retail price transactions makes little difference.

Today, however, discounts and coupons to drive traffic and sales are used much more frequently by more and more restaurants. For example, I recently reviewed the financials of an upper-end, casual restaurant whose promotional discounts alone last year were more than 20 percent of sales.

When discounts and comps exceed 3 percent of gross sales, the method used to account for them can make a significant difference in the way several key numbers on a restaurant's P&L (profit-and-loss statement) are calculated and interpreted.

The purpose of this article is not to debate the merits or pitfalls of discounting practices (another article for another time); instead, our intention here is to examine how best to account for these transactions so they are presented in a meaningful and useful manner on your restaurant's operating reports and financial statements. Particularly in operations that rely on heavy discounting to drive sales, it's extremely important that owners and managers clearly see the economic effect the practice of discounting and "comping" has on their key costs, margins and overall profitability.