In the world of restaurants, there are all sorts of costs. It’s a lot to manage, from buying the best ingredients to paying bills. Today, we’re focusing on one crucial thing: determining how much food costs compared to what you sell it for.
By the end of this read, you’ll understand how to work it out and use it to make smart choices for your restaurant’s success. So, let’s dive into the basics and get you all up for better business.
What is food cost?
Food cost is how much a restaurant spends on all the ingredients needed to make the dishes they serve. This includes everything like meat, veggies, and spices. It’s important because it helps the restaurant know if they spend more on ingredients than they make from selling the food.
By keeping track of food costs, restaurants can figure out the correct prices for their dishes and ensure they’re not spending too much on ingredients.
How to calculate food costs?
To calculate the restaurant’s food costs, you need to go through the following steps:
Step 1. List all ingredients
Write down all the ingredients you use to prepare a dish, even the quantity of cooking oil used.
- Pizza Dough
- Tomato Sauce
- Fresh Mozzarella Cheese
- Fresh Basil Leaves
- Olive Oil
- Salt
- Pepper
Step 2. Add up costs
Calculate each dish’s total cost by adding up its ingredients’ costs.
- Pizza Dough: $1.50
- Tomato Sauce: $0.75
- Fresh Mozzarella Cheese: $2.50
- Fresh Basil Leaves: $0.50
- Olive Oil: $0.25
- Salt and Pepper: $0.10
- Adding up the ingredient costs:
Total Ingredient Cost = $1.50 + $0.75 + $2.50 + $0.50 + $0.25 + $0.10 = $5.60
Therefore, making a Margherita pizza would cost around $5.60 using the ingredients mentioned.
Step 3. Determine per-meal fixed cost
Identify the fixed costs associated with preparing each meal. To determine your fixed cost per meal served, follow these steps:
- Identify Fixed Costs: Write down everything you always pay for, like rent, electricity, and salaries.
- Calculate Total Fixed Costs: Add all those fixed costs from step 1.
- Count Meals Served: Figure out how many meals you’ve cooked in a certain time, like a day or a week.
- Divide Total Fixed Costs: Divide the total fixed costs (from Step 2) by the number of meals served (from Step 3).
The result will give you the fixed cost per meal served. This calculation helps you understand how much of your expenses are associated with each meal you produce, which is valuable for pricing decisions and budgeting.
Let’s say you have the following fixed costs for a month:
Rent: $1,000
Utilities: $300
Salaries: $800
Insurance: $150
Equipment Maintenance: $100
Total Fixed Costs = $1,000 + $300 + $800 + $150 + $100 = $2,350
During the same month, you served a total of 500 meals.
Now, let’s calculate the fixed cost per meal served:
Fixed Cost per Meal = Total Fixed Costs / Number of Meals Served
Fixed Cost per Meal = $2,350 / 500 = $4.70
In this case, the cost for every meal served is $4.70. This money helps pay for things like rent, salaries, and other fixed costs, besides what you spend on ingredients and other changing expenses.
Step 4. Calculate the percentage of menu item price that comes from food
In this step, you need to find out what portion of your menu price is attributed to the cost of food. You can calculate this by dividing the food cost by the menu price. For instance, if making a Caesar Salad costs you $3, and you sell it for $7, your food cost would be 43%.
Let’s say that making a Margherita pizza costs $5 in your restaurant, and you sell it for $9.
To calculate the food cost, you can use the formula:
Food Cost = (Cost of Menu Item / Menu Item Price) * 100
Food Cost = ($5 / $9) * 100 ≈ 55.56%
So, the food cost for the Margherita pizza is approximately 56%.
Step 5. Pick your food cost goal
Decide what percentage you want to spend on food costs.
Let’s say you’re selling a dish for $12, and you know your fixed cost per meal is $8.
Maximum food cost = $12 – $8 = $4
This means that your expenses for making the dish shouldn’t exceed $4 if you want to profit from the food served.
Step 6. Review your menu prices
Be sure to review each dish to see if its price covers the food and fixed costs per dish.
- Continuously monitor costs: Keep closely monitoring your expenses and adjust as needed.
- Evaluate your menu regularly: Regularly assess your menu’s performance and adjust prices if necessary. Consider using menu engineering to build a profitable menu.
- Optimize operational efficiency: Fine-tuning operations helps to minimize food waste in restaurants and enhance cost-effectiveness.
While creating your restaurant menu, don’t forget about its online version. You can use an intuitive restaurant website builder to build your restaurant website with UpMenu.
Select one of the professional restaurant website templates and then add your menu items, restaurant contact information, and opening hours. Having this done, you can start offering online orders to your customers. A food ordering system for restaurants compatible with your newly created website will be an excellent option to start selling your dishes online.
What is the food cost percentage?
Food cost percentage is like looking at how much money a restaurant pays for the ingredients in its food compared to how much it makes from selling that food.
It’s shown as a percentage and helps the restaurant know if it’s spending too much on ingredients. It’s a way to see if the money they earn from selling food is enough to cover the cost of making it.
To calculate the food cost percentage, you need to follow the formula below:
Food Cost Percentage = (Cost of Food / Total Sales) * 100
Example
Imagine a restaurant makes $25,000 a week, and the total cost of food and drinks is $9,000. In this case, the calculation would be as follows:
Food Cost Percentage = ($9,000 / $25,000) * 100 = 36%
While taking into consideration the ingredient cost (item’s food cost) and a menu item price, the formula is as follows:
Food Cost Percentage = (Ingredient Cost / Menu Item Price) × 100
Below you can see an example of calculating the food cost percentage for Margherita’s pizza
Let’s assume the price of Margherita pizza in your restaurant is $10.
The ingredients for the pizza are as follows, along with their prices:
- Pizza Dough: $1.00
- Tomato Sauce: $0.50
- Cheese: $1.00
- Pepperoni: $0.75
- Olive Oil and Spices: $0.25
Adding up the ingredient costs:
Total Ingredient Cost = $1.00 + $0.50 + $1.00 + $0.75 + $0.25 = $3.50
Now, let’s calculate the food cost percentage and the cost of the $10 pizza:
Menu Price: $10.00
Ingredient Cost: $3.50
Food Cost Percentage = (Ingredient Cost / Menu Price) × 100
Food Cost Percentage = ($3.50 / $10.00) × 100 = 35%
In the case of the pizza mentioned, where the ingredients cost $3.50 and the menu price is $10.00, the resulting food cost percentage is 35%.
While certain restaurants rely on food costs to establish the dish’s price, others opt for the Cost of Goods Sold (COGS). COGS considers the complete inventory value needed for the dish, including even the smallest details like napkins and garnishes.
You can also use the following food cost percentage formula:
Total food cost percentage = (Total Cost of Goods Sold / Total Food Sales) x 100
The formula to calculate the total Cost of Goods Sold (COGS) is:
Total COGS = Beginning Inventory + Purchases During the Period – Ending Inventory
Example
Let’s say you want to calculate the food cost percentage for the pizzeria you are running and your data is as follows:
- Beginning Inventory: $1,500
- Purchases During the Period: $2,000
- Ending Inventory: $1,200
- Food Sales: $6,000
Using the formula:
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Food Cost Percentage = ($1,500 + $2,000 – $1,200) ÷ $6,000
Food Cost Percentage = $2,300 ÷ $6,000 ≈ 0.3833
We multiply it by 100:
Food Cost Percentage ≈ 38%
In this example, the food cost percentage for the pizzeria is approximately 38%.
Why does food cost percentage matter?
Food cost percentages in restaurants assist owners in keeping an eye on both overall expenses and the prices of specific ingredients. Keeping an eye on changes in ingredient prices can give restaurant owners the information they need to make smart choices about spending. This can lead to better profits for the business.
Breaking down food cost percentage and cost of goods sold into detailed parts can reveal important information. Analyzing recipe costs can tell you how much profit you make on each dish serving.
You can boost your restaurant profit margin and make the most of your earnings by monitoring your food cost percentage and other expenses like labor, equipment, and rent.
What are the benefits of calculating food costs?
When you calculate your food cost in a restaurant, the benefits are as follows:
- Profitability Enhancement: Calculating restaurant food costs allows you to gauge how much you spend on ingredients compared to revenue, supporting profitability analysis.
- Strategic Pricing: Utilizing actual food cost data aids in setting menu prices that cover expenses while staying competitive.
- Expense Management: Tracking food costs assists in effective food cost control, revealing spending trends and guiding cost-saving decisions.
- Menu Optimization: By assessing actual food cost percentages, you can identify high-margin dishes, aligning your menu with profitability goals.
- Waste Reduction: Monitoring restaurant food costs promotes inventory efficiency, reducing waste and trimming unnecessary expenditures.
- Financial Planning: Incorporating food cost figures into budgets and plans ensures accurate financial forecasts and informed decision-making.
- Supplier Negotiations: Armed with precise food cost insights, you can negotiate better supplier deals, optimizing ingredient procurement.
- Scenario Analysis: When you calculate actual food cost, it empowers you to simulate the impact of pricing changes or new items on your bottom line.
- Efficient Operations: Maintaining restaurant food costs fosters efficient kitchen processes, ensuring consistent quality and minimizing wastage.
- Profit Maximization: Controlling food costs safeguards profitability without compromising food quality or guest satisfaction.
What is a good food cost percentage?
According to Chron usually, food costs (including drinks) in the restaurant industry fall between 28% and 35%. However, remember that the “good” percentage isn’t fixed; it changes based on the food type and restaurant expenses.
To determine the optimal percentage for your restaurant, you’ll need to calculate your ideal restaurant food cost percentage.
How to calculate an ideal food cost percentage?
As mentioned, an ideal food percentage typically ranges between 28% and 35%. In other words, for every dollar of revenue generated from food sales, a restaurant ideally aims to spend around 25% to 35% on the cost of ingredients used to prepare those dishes.
To calculate an ideal restaurant food cost percentage, you need to know the values of two variables:
- total cost per dish,
- total sales per dish
Knowing these variables, you can follow an ideal food cost percentage formula:
Ideal Food Cost Percentage = Total Cost Per Dish ÷ Total Sales Per Dish
Effective food cost control is essential for managing the restaurant business effectively.
Let’s consider a pizzeria’s scenario to calculate the ideal food cost percentage:
- Total Cost Per Dish is $5.00, and it includes all the expenses linked to the ingredients like dough, sauce, cheese, and toppings that make one pizza
- Total Sales Per Dish is $15.00, the menu price at which customers purchase the pizza.
Using the formula for ideal food costs:
Ideal Food Cost Percentage = Total Cost Per Dish ÷ Total Sales Per Dish
Ideal Food Cost Percentage = $5.00 ÷ $15.00 ≈ 0.3333
When we multiply it by 100, we will see an ideal food cost percentage, which is:
Ideal Food Cost Percentage ≈ 0.3333 × 100 ≈ 33%
To sum up, the pizzeria’s ideal food cost percentage for the pizza would be approximately 33%. This means that for every dollar earned from selling the pizza, a restaurant owner aims to spend around 33.33 cents on the cost of ingredients used to make that pizza.
Let’s say this pizzeria’s actual food cost percentage is 37%.
We can calculate an actual cost percentage once we calculate an ideal food cost percentage.
Our aim is to compare how we ideally want the food costs to be with how they actually turn out. This helps us understand if our desired food cost percentage matches the real numbers.
Imagine that the pizzeria from our example has an actual food cost percentage of 37%, while our ideal food cost is 33%. This reveals a 4% difference, indicating that our pizzeria could generate 4% more revenue.
Here comes the next question.
How to lower the food cost percentage?
There are three basic strategies to decrease the food cost percentage and achieve a target food cost percentage. They include:
- Assessing portion sizes reduction possibilities
- Evaluating potential cost-effective suppliers
- Considering menu price adjustments
Remember that bringing down the food cost takes time and needs you to keep an eye on things and make changes over time. You need to balance spending less on ingredients and ensuring your food tastes great and people like it.
Optimizing your food cost percentage
If you want to optimize menu prices and your food cost percentage, you can use the following strategies:
- Menu price adjustment: Consider increasing prices on your menu by a slight margin and incorporate this change into your overall restaurant business strategy.
- Conduct menu analysis: Utilize menu engineering to assess the profitability and popularity of each item. Analyze dish costs, categorize items by their profitability and popularity, and revamp the menu with captivating descriptions highlighting attractive and successful choices, enhancing sales.
- Reduce portion sizes: Offer smaller portions or sizes to customers who prefer less food. This approach not only curbs wastage but also trims inventory costs.
- Look for affordable suppliers: To optimize your restaurant food cost percentage, seek out lower-cost suppliers within your network and explore alternatives that offer quality ingredients at reduced prices. This strategic approach can help enhance cost-efficiency while maintaining ingredient standards.
- Minimize food waste: Reducing food waste in a restaurant involves implementing efficient inventory management, creatively utilizing surplus ingredients, and offering limited-time specials to use ingredients at risk of being wasted. These efforts not only reduce costs but also contribute to environmental sustainability.
- Opt for in-season ingredients: Aligning your menu with the changing seasons can save total food costs. Opting for in-season ingredients and produce, which are more affordable, along with featuring trendy seasonal items, can boost both popularity and profitability among customers.
Setting menu prices in your restaurant
While setting food prices for your restaurant, you need to consider both the financial aspects of running your business and customers’ expectations. To calculate prices for menu items, you need to know the cost per serving and your ideal food cost percentage.
Use the formula below for food costing
Ideal menu item price = Cost per serving / Ideal food cost
Let’s have a look at an example. Let’s assume you’re running a pizzeria and want to achieve an ideal food cost percentage of 30%. The cost to make a Margherita pizza is $5.00.
- Ideal Food Cost Percentage: 30%
- Cost per Serving (Pizza): $5.00
Using the formula:
Ideal Menu Item Price = Cost per Serving / Ideal Food Cost Percentage
Ideal Menu Item Price = $5.00 / 0.30 = $16.67
In this example, to run a profitable restaurant with a 30% ideal food cost percentage, the ideal price for the Margherita pizza would be approximately $16.67.
Remember to pay attention to your local market trends. Adjust the price according to market trends if a dish is in high demand.
Key Takeaways
- Restaurant total food costs refer to the expenses incurred in purchasing and preparing dish ingredients. It’s a crucial aspect of managing restaurant finances.
- The food cost percentage data reflects the portion of sales revenue that covers food costs. It’s a vital metric indicating how efficiently a restaurant balances expenses and income.
- Calculating the actual food cost percentage helps assess how effectively ingredients are managed. Comparing this to the ideal food cost percentage can highlight areas for improvement.
- The ideal food cost percentage varies by establishment but generally falls within a specific range, often between 28% and 35%. Striving for this range optimizes profitability.
- Setting menu prices while considering food cost percentage ensures that each dish contributes to profit. Careful analysis helps strike the right balance between value and revenue.
- Regularly tracking total food sales and costs and adjusting as needed is essential to maintain a healthy financial position and achieve the desired ideal food cost percentage.
Frequently Asked Questions (FAQ)
How do you calculate 40% food cost?
Food Cost Percentage = (Ingredient Cost / Menu Item Price) × 100
Let’s say you have a menu item – Margarita pizza – that costs $8.00 in ingredients.
Ingredient Cost: $8.00
If you want to achieve a 40% food cost, you can rearrange the formula to solve for the menu item price:
Menu Item Price = Ingredient Cost / Desired Food Cost Percentage
Menu Item Price = $8.00 / 0.40 = $20.00
In this instance, to sustain a 40% food cost, the Margherita pizza should be priced at $20.00. This ensures that the ingredient cost accounts for 40% of the price of this dish.
You can effectively manage profit margins by calculating the food cost percentage for your food items.
Is 30 percent food cost good?
This figure is arrived at by using the food cost formula, which divides the cost of food supplies by total sales and then multiplying by 100. A restaurant’s food cost percentage is a crucial indicator of profitability, as it helps determine appropriate menu prices to cover expenses while ensuring reasonable profit margins.
While a 30 percent food cost is generally favorable, it’s essential to note that what constitutes a “good” food cost percentage can vary based on the type of cuisine, operational efficiencies, and local market conditions
Is the food cost percentage gross or net?
Thus, total food sales are employed when computing the food cost percentage, encompassing the complete sales amount, excluding discounts, returns, or allowances.
How do you calculate food cost per serving?
Food Cost Per Serving = Total Cost of Ingredients / Number of Servings
Let’s say you are running a pizzeria.
If it costs you $10 to gather all the ingredients needed for a particular pizza, and this pizza can be divided into 7 servings:
Food Cost Per Serving = $10 / 7 ≈ $1.43
So, each pizza serving costs you around $1.43 to make.
This calculation gives you an idea of the cost of producing each individual portion of a dish.
