For those of you in the restaurant industry, I’m guessing you have a passion for great food and love providing exceptional dining experiences for your guests.
However, in order to make that a reality, it’s equally as important that you have a solid handle on all your finances. A poor financial model means that you’ll be limited in how well you’re able to serve your customers - and a key component of your finances is food cost.
In this post, we’ll discuss how you should calculate your food costs effectively in order to reduce costs and boost sales – a win-win!
How to Calculate Food Cost
To maximize revenue, you must diligently monitor your food cost percentage. Even if you weren’t a math major in university, you can still use basic arithmetic and common sense to figure out your food cost as a percentage. This allows you to finally take control of your costs and boost your restaurant’s overall performance in the process.
Food cost percentage is calculated by taking the cost of goods sold and dividing that by the sales generated from each finished dish. Don’t worry, this might sound complicated now but we’ll explain it in greater detail.
Your cost of goods sold can be calculated by first tracking the dollar value of each item that you purchased for the week (Beginning Inventory). Then you can take stock of any other purchases you made during the week (Purchases). From there, you’ll track inventory at the end of the week in order to see how much you have left (Ending Inventory). And finally you’ll add together total food sales for each shift (Food Sales).
Now that you have the 4 key components to calculate food cost percentage, you can simply input those numbers into the following formula:
Food Cost Percentage = (Beginning Inventory + Purchases - Ending Inventory)/Food Sales
How to Optimize Your Food Cost Percentage
Well first, let’s define what a good food cost percentage is. The food cost percentage for most restaurants, on average, is 28-32%. Of course, this will vary based on the type of restaurant that you have, but these are good baseline numbers.
Now, finding ways to optimize that food cost percentage can only help your restaurant’s bottom line–allowing you to invest in other key parts to grow the business.
Best practices to reduce food costs include:
Raising prices on your menu a small amount if your business plan allows it (and you’ll still retain customers)
Constantly engineering your menu design based on which items are bringing in the most sales during a particular time
Shopping wholesale or purchasing in bulk
Keeping an eye on portion sizes (especially if certain items are consistently coming back only partially eaten)
By now, hopefully you can see the importance of knowing your food cost percentage numbers like the back of your hand. Optimizing that percentage will allow your business to flourish. If your bottom line is taken care of, you’ll have plenty of room to grow your restaurant quickly and efficiently.