Calculating food costs is one of the things that every restaurateur dreads the most. It’s a tedious process that never really ends. Keeping costs under control is what separates successful restaurants from those that are shuttered after a few months.
Running a restaurant is running a business, and like any business, you’ll need to know the potential earnings on any dish that you serve. Knowing accurate food costs lets a restaurant owner set menu prices that will put the business on track to profitability. It’s the information you will need to adapt to changes, whether its reducing portion sizes, boosting prices, honing your marketing or even dropping some items from the menu.
Food cost is the ratio of how much you spend on your food inventory to your revenue from food sales. It covers only expenses related to ingredients and excludes other factors, such as overhead or labor. Food cost, which drives menu prices, is expressed as a percentage. Experts say to shoot for the sweet spot between 30 and 45 percent. Coupled with labor costs, these expenses consume between 50 and 75 percent of total sales.
Here’s how to calculate food cost.
Sales, inventories and purchases are the important elements that should always be represented in your food cost calculation. By knowing these factors, you would get a good indication when it’s time to increase the price. For example, if there is a decrease of value in the ending inventory during a period, you need to have an inventory adjustment to make up for the difference – this would increase the cost of food sales if you did not replace it with new purchases.
Comparisons to the previous performance, as well as identifying problems and trends can be very helpful. With this, your operation will be able to take the next step to tighten their food costs by standardizing recipes, evaluating purchasing systems, etc.
You will have a more accurate perspective once you compare your cost percentage to restaurants with similar menus and service levels. In the end, keeping food costs under control is a make-or-break practice for restaurants. Done correctly, it will let you respond to demand and price spikes quickly without hurting your bottom line.