How to calculate your food cost in the Restaurant business?
In the restaurant industry, the percentage of food costs is one of the most important metrics for business life. Food is a commodity that is sold in restaurants, so food costs account for a significant amount of extra restaurant costs. But it is important to remember that restaurants have other costs — rent, utilities, salaries, utilities, and so on — so the cost of food needs to be managed to ensure that there is enough money left over to cover all expenses — and still be profitable.
Calculating the percentage of food costs may be tedious, but it is very necessary. Continue to learn everything you need to know about the percentage of food costs: Why it is so important, how to calculate it, and how to use it to maximize restaurant profits.
What Is Food Cost Percentage?
Percentage of food costs is the average amount of money your restaurant spends on food and beverage (food listing) on the revenue generated by those ingredients when sold as menu items (food sales) through different channels i.e. online or offline through application and Websites. It is expressed as a percentage of total revenue from food sales.
Do not worry if that seems too complicated — it will make more sense if we explain how to calculate the percentage of food costs later in the article.
Why Is the Percentage of Food Cost So Important in Restaurant business?
Knowing the percentage of your food expenses is important because it is one of the most important indicators of profit — and thus, overall success — in the restaurant. The restaurant business operates with low-profit margins (usually 3-5 percent), so keeping food costs up to date is important to keep profits in your restaurant.
Managing your percentage of food expenses allows you to:
- Spend wisely: If you know exactly how much room there is in your food budget, you know when you need to reduce it, and when you can eat with an expensive ingredient to get an amazing specialty.
- The developer of your menu: Calculating the percentage of food costs is one of the pillars of menu engineering, how to use menu design and pricing strategies to maximize profits.
- A better understanding of Supply Chain: Especially today, when supply chain disruptions cause unexpected changes in commodity prices, knowing your percentage of food costs can give you a clear picture of how changes in supply chains affect the profitability of your restaurant.
- Updating your menu: Understanding the percentage of food costs means understanding exactly how much money you have on ingredients. To save on expenses, many restaurants are catered for with foods such as seasonal specials using widely available and affordable local ingredients.
Remember, however, that the percentage of food costs is one metric among the many restaurant owners who need to follow it. To get a complete picture of your restaurant costs, revenue, and profits, you should include:
- Cost of goods sold (COGS) and the total amount of profit;
- Total food costs and establishment costs;
- Service costs;
- Operating costs.
How to Calculate Food Expenses Restaurant ?
Now that you have a solid handle on the cost of restaurant meals, let’s take a look at how we can calculate food costs in specific recipes and times. You will also learn how to determine the right percentage of food costs right at your restaurant (advice: does not include looking at the percentage of restaurant costs in the restaurant!)
How to calculate plate cost in restaurant ?
If you have ever spent time building menus, you know how difficult it can be to calculate the cost of plates.
Calculating the cost of one plate starts with a standard recipe that lists all the last ingredients used in the item. If you use a scrubbing kitchen, this will include ingredients for preparing items such as breads, condiments, and sauces.
Each ingredient should not only have a specific quantity and unit of measurement, but also their exact weight. This ensures consistency as the recipe is repeated many times, and also ensures a more accurate plate cost.
Once the recipe ingredients are listed, restaurants or chefs often create a spreadsheet to include all the relevant data about the ingredients they serve in that menu item. Everything from the unit of measurement to the purchase of an ingredient to the value of the purchased unit provides the kitchen to the individual feeding units and the cost of those units is kept in this spreadsheet.
As you can imagine, this is where the cost of the plate comes up. All measurement and calculation of every ingredient in a menu item needs to be done precisely in order to set the correct values. When just one small thing is turned off, you are not following a healthy diet and important expenses in a controlled manner.
If the cost per unit feed of each ingredient is calculated, the cost of the plate can be determined by finding the sum of all those unit costs.
From there, the percentage of food costs of the plate can be determined by this formula:
How to Calculate Time Costs in Restaurant?
Calculating the cost of a restaurant for a certain period of time is more accurate than calculating the cost of plates, but it still requires some work.
To calculate time costs, you will need to use the COGS formula:
(Inventory Inventory + Purchase) – End of Property = Food Cost
For example, if the first July inventory is $ 1100, the purchase is $ 400, and the last inventory is $ 600, then the total cost of food at that time is $ 900.
($ 1100 + $ 400) – $ 600 = $ 900
Knowing your COGS will tell you how much you spend on food to produce your own menu items and how effectively you control the cost of restaurant food. Consider also using the COGS formula to calculate the time costs of other restaurant categories, such as beer and wine.
Next, you will collect food or sales revenue data from the same time you calculated COGS. Testing your POS system, like Toast, in this information should be very simple. Because of this example, we would assume that the June sale was $ 3000.
Finally, the percentage of food costs for the period can be calculated using the formula:
Using the same example above, the cost of the July restaurant time will be 30%:
($ 9,00 / $ 30,00) x 100 = 30
What is a Percentage of Good Food Cost ?
Have you ever considered the percentage of food costs in your competition? Have you talked to your peers about the industry about what their food costs goals are? Or do you just use the restaurant’s accounting tips to figure out how far you can work?
Comparisons certainly offer a wide range of ballpark to help you decide whether you are over or under the “normal” food costs. But the fact of the matter is that a good percentage of the cost of food at a restaurant may not be the same as elsewhere.
Each restaurant is different, so your percentage of food expenses should reflect your reality. Use your percentage of your target food costs or your maximum allowable food expenses (MFC) to estimate where you stand.
MFC is the number of food costs you should not exceed if you want to meet your restaurant business business objectives. Go beyond your MFC, and you will almost certainly not be as profitable as you plan to be.
Calculate your MFC with this formula:
Let’s continue with the previous example. You already know that your July expenses are 33% — but is that good or bad for business?
By empowering yourself with MFC, you can easily determine if you are on the right track or if food costs need to be monitored closely.
You Know Your Percentage Expenses — What Happens?
Once you have calculated the percentage of your food expenses, what’s next? This is a useful metaphor that can be used to save costs and increase profits in many different ways.
Accept Seasonal Ingredients: If you’ve been thinking about making your menu seasonal, here are some excuses you need. Seasonal ingredients are not only very new, but often very affordable, as they are plentiful in your area when you are in season. You can reduce your percentage of food costs by rotating seasonal menu items using low-cost ingredients, depending on the time of year.
Monitor Merchant Price Changes: Your retailers often change their prices depending on the season of items and demand. This flexibility may seem a little overwhelming week by week, but it can add up to a lot of money over time.
Tracking price changes will also help you determine if the cost of your plate needs to be re-evaluated — which, as you know, can make a difference if you reach a percentage of your target food costs. Practice tracking that difference. By collecting data, you gather important information that can help you determine if traders agree or change prices regularly, and gives you more power to negotiate total value.
Develop More Relationships: By tracking your seller’s invoices available, you may find that prices fluctuate in such a way that you cannot predict, or that your seller often changes prices for seemingly insignificant reasons.
Because of this possibility, you have to have several vendors on hand. Expand your resources, and compare their bid sheets against each other — with your existing vendors. Not only does it open the door for you to have more options, but it also opens the door to negotiate lower food costs by integrating your business vendors.
Buy Ingredients in bulk: Another good way to save ingredients is to buy as much food as possible whenever possible through different E-commerce Websites. It is important to note, however, that this will save you restaurant costs only if you are able to use all of your bulk ingredients before they expire. Attempts to buy bulk ingredients without a well-established inventory management system could result in further food waste — an annual cost of $ 162 billion in the restaurant industry.