When you are dealing with a food business, then calculating food cost or its value in percentage is essential. Though its time consuming and confusing but it helps you to:
1. Spend and earn smartly
When you know your food cost percentage and cost of goods sold, then you could price your item on the menu accordingly. This way, you could also make sure that your menu items remain under your cost margin. Through this, you will know about those menu items which give you more profit so you could advertise them more.
2. Menu optimization
As we know, food ingredients prices go up and down, mainly due to change in season, so you have to customize your menu accordingly. So for those items which are no longer giving you profits as much as they used to, you could update them with new profitable recipes. But to know your profit margin on menu items, you need to know the food cost percentage, which you have to integrate with your point of sale. In this way, food cost percentage data will help you to optimize your menu by letting you know when you have to re-price a menu item.
3. Decide whether to keep a new recipe or not
Every restaurant wants to keep up with the latest trends and add new recipes to its menu to attract more people with different taste buds. But to decide whether to add the item to the menu or not depends upon food cost percentage as every business’s ultimate goal is to earn a profit. So if the new recipe aligns with your ideal food cost percentage, then it could make to the menu otherwise store it away for another time or adjust it according to your ideal food cost percentage.
The above factors, with many other un-written factors, make food cost percentage a vital metric of the F&B industry. According to a Restaurant research report, 52% of restaurant personnel stated that they faced high operating and food costs as a big challenge at the start.
How Do You Calculate Food Cost Percentage?
If you want to optimize your business for success, then you have to know the right formulas and matrices which food cost percentage is a part of.
So, let’s get to know how you can calculate food cost percentage with the help of formula. You can also use an online food cost calculator.
To understand it, all you have to do is to divide the cost of goods sold (COGS or CGS) by your sales amount.
Food cost percentage = (cost of goods sold)/(sales)
The amount of money you have spent on ingredients is called the cost of goods sold, and the sales amount is the sum of money you get when you sell your items.
In many full-service and quick-service restaurants, the food cost percentage, on average, is 28-32%. To know about your restaurant, follow the below tips:
- Make a list of all the food ingredients you purchased or received from the start till the end of a week.
- Add the value of each food item.
- To make sure that you have listed down everything, track your purchases.
- Follow the same exact process for next week’s inventory.
- Add the number of total food sales per shift. If you don’t want to do it manually, then use a POS system with restaurant analytics to get this information automatically.
- With the help of following food cost formula, calculate actual food cost for the week.
Food cost percentage = (Beginning Inventory + Purchases – Ending Inventory)/ Sales
If you see that your food cost percentage is dramatically high or low, then make sure that you accounted for each purchasing invoice and used the right unit. Also, re-count your items.
How Do You Calculate Ideal Food Cost Percentage?
Well, if you want to know whether your restaurant business is on track, then you have to have some metric with which you can compare your food cost percentage.
To do so, compare your actual food cost, which you have calculated above with your ideal food cost.
The calculation of the ideal food cost percentage is pretty much similar to actual food cost percentage, except it does not take into account your beginning and ending inventories and consider the total costs and sales associated with each dish or menu item.
Ideal food cost percentage = (total cost per menu item)/(total sales per menu item)
Remember that when you are working with ideal costs, you suppose that there is no food waste and theft in your restaurant.
How Do You Calculate Food Cost Per Serving or Menu Item?
Now you know that you need to calculate food cost per serving or food cost per menu item as well as total sales per serving or total sales per menu item in order to calculate the ideal food cost percentage. So here are the simple formulas to calculate them.
Food Cost Per Menu Item = Food Cost of Ingredients x Weekly Amount Sold
Total Sales Per Menu Item = Sales Price x Weekly Amount Sold
Examples for your understanding
The calculation for actual food cost percentage:
Food cost percentage = (Beginning Inventory + Purchases – Ending Inventory)/ Sales
Beginning inventory = 30,000
Purchases = 8,000
Ending inventory = 32,000
Food sales = 20,000
Food cost percentage = (30,000 + 8,000 – 32,000) / 20,000 = 30%
The calculation for the ideal food cost percentage:
Ideal food cost percentage = (total cost per menu item)/(total sales per menu item)
Total cost per menu item = $5,000
Total sales per menu item = $20,000
Ideal food cost percentage = 5,000/20,000 = 25%
From the above examples, if we calculate the difference between ideal food cost percentage and actual food cost percentage, then it is 5%, which means that there is an extra 5% of food wastage or additional purchasing. Now that you have grasped these concepts, minimize them to maximise your profits!
