If you hope to turn a profit as a restaurant owner, your math needs to be as good as your menu. It’s important to not only serve up interesting and delicious dishes, but your selections and pricing of each item need to be done with your business goals in mind. In other words, you need to wrap your head around the idea of food cost percentage.
What is Food Cost Percentage?
Simply put, food cost percentage is the ratio between the total cost of your ingredients and the amount of revenue generated from selling each dish. Most experts say that you should try to end up with an average restaurant food cost percentage of around 30%.
According to RestaurantReport.com, a profitable restaurant typically generates a 28%-35% food cost. The article also points out that different types of restaurants may have different food cost goals, with steak houses running up to 40%, versus 35% for an American/Regional menu themed restaurant.
Not only will this calculation help you price your menu items correctly, but it can also help you identify any food waste so that you can work to make improvements and boost your bottom line. Keep reading as we break down restaurant food cost and how to use a food costing formula to drive up your revenue.
Menu Money Matters
Regularly monitoring restaurant food cost will help determine when you need to make adjustments to your menu prices or switch up the types of ingredients or quantity of items you’re purchasing. It can also help you gauge if there’s a discrepancy is between your food cost percentage and what your actual food cost is.
Let’s explain… Although figuring out your food cost percentage is a good place to start, you also want to gauge if there’s a discrepancy between your ideal food cost percentage and your actual food cost. The ideal cost is the calculation mentioned above – the food cost percentage based on what you’re spending on ingredients and how much you’re selling it for. However, not every dish that’s served might include the exact amount of ingredients if portion sizes aren’t measured. Also, some food might spoil or be spilled.
Food can account for 35% of expenses. Find out if you’re spending too much with our Food Cost Calculator.
So your actual cost will factor in both your beginning and ending inventory (and any extra purchases you made in between), to give you a more accurate view of what your food cost percentage is. It will always be slightly higher than the food cost percentage, but your goal is to make sure that it’s not significantly higher. That would indicate that portion sizes are off or that there is unnecessary food waste – both of which can be prevented.
Food cost percentage = Total spent on ingredients/Food sales
Actual Food Cost percentage = (Beginning inventory + Purchases – Ending inventory) / Food sales
Example: The menu cost of your chicken fingers and fries meal is $12, while your total ingredient cost is $4. Dividing $4 by $12 leaves you with a food cost percentage of around 30%. But let’s say that some of the chicken fingers are left out of the freezer accidentally and have to be thrown away. That would now drive up your actual food cost percentage because you won’t be able to sell them. You would only figure this out by tracking your inventory.
Once you figure out your restaurant food cost, if you find that it’s higher than you’d like, you can look for ways to increase profitability. Here are some strategies to consider:
- Evaluate portion sizes. If plates are coming back half uneaten, that might mean that the serving size is too large, and therefore, you’re wasting money. Use measuring cups and spoons and food scales when plating so portions are consistent.
- Keep watch on rising prices for certain ingredients. Prices fluctuate, which is why you need to do your food cost percentage calculations on a regular basis. But let’s say a particular ingredient is getting pricey, you have to decide if you want to reduce the amount you use, or if you need to slightly increase your menu price to reflect the higher cost.
- Don’t forget about the extras. Condiments, sauces, seasonings, spices, and garnishes can add up, so don’t forget to include them in your cost calculations.
- Create a healthy balance of expensive and inexpensive recipes and menu items. You don’t want to sacrifice taste or quality, of course, but if you can find a way to use less expensive ingredients in a creative way, you can cut your costs.
- Take advantage of lower cost seasonal ingredients to create menu specials. From soups to salads to pasta entrees, in-season produce offers a fresh (and affordable-for-you) option.
- Increase your prices slowly. If you need to raise your menu prices, you don’t want to make it so drastic that you turn off your customers. Adding small price increases to various menu items might not even be noticed, but it can help you achieve your food cost goal.
- Compare your cost to similar restaurants. Successful dining establishments with similar menus can help give you an idea if your prices are in the right ballpark.
- Try to promote menu items that are profitable. Educate your wait staff on which dishes to recommend most.
- Watch the freebies. Diners love bread baskets or chips on the table, but be sure you’re choosing a low-cost mix of items so they are not cutting too much into your profits.
- Be careful when buying in bulk. Although you can save money this way, some restaurant owners fall into the trap of buying too much of an ingredient, and it ends up spoiling.
POS Systems to the Rescue
Restaurant POS, inventory, and food costing software management platforms like Upserve can do all of the heavy math lifting for you. Upserve helps you manage your inventory, keep track of purchases, and calculate your food costs.
And don’t forget – your restaurant food cost is just one part of your business calculation. You’ll also have to factor in your rent, utilities, labor cost, and other expenses when deciding on how to price your menu.
By making food cost calculations a part of your recipe for success, you can ensure that your restaurant will thrive and profit for years to come.