The food cost percentage is one of the most important numbers that every manager and restaurateur should always track and calculate in order to have a successful restaurant business.
In this post you’ll see:
- What food cost is and why is so important
- How to calculate the food cost percentage in 3 easy steps
- How to know what your ideal food cost should be
- The most common factors that increase your food cost
- How to reduce food cost percentage
What is Food Cost?
The food cost is a number that will tell you how much you spent on ingredients in order to sell what you sold.
For example if you sell in October 20.000 euros of food, how much did it costs to sell that amount of food? If you know that you spend 5000 euros to sell 20.000 than you know that your food cost is 25%.
This number is one of the main costs that you’re food and beverage operation face and could easily represents one third of the total expenses of your business.
I don’t think I need to tell you that not keeping this number under control is one of the main cause of restaurant failure.
I know how many things you have to do every day and that’s why I’ll try to keep it as easy and quick as possible but still very effective to improve your restaurant profitability.
How to Calculate Food Cost Percentage in 3 Steps
#Step 1 Getting the necessary data
There are 4 numbers you have to collect.
Initial Inventory Value : this is the sum of the value of every single item in your inventory at the certain time (in this case at the beginning of the period you want to examinate). For example if at the beginning of October you have 10 Seebass in your fridges and you paid 10 € per piece, your Inventory value is 100€ .
By the way, this calculation is automatic if you have an efficient software. We, for example use Marketman .
Purchases: this is the sum of all the food purchases, in a determined period of time, that will be used to create your menu items.
Final Inventory Value : same of Initial Inventory Value but at the end of the period you want to examinate. For example end of October if you want to see your food cost of October.
Food Sales : How much food did you sell in a determined period of time. Nowadays you can easily find this information from you POS (point of sales).
#Step 2 Use this Formula to calculate Food Cost
#Step 3 Use this Formula to Calculate Food Cost Percentage
#Example How to calculate food cost percentage
Beginning Inventory at 1st October 2020: 8.000 €
Final Inventory at 30th October 2020: 9.200 €
Food Purchases October 2020: 3.000 €
Food Sales October 2020 : 6.000 €
Food Cost = ( 8.000 + 3.000) – 9.200
Food Cost = 1.800
Food Cost % = (1.800 / 6.000) * 100
Food Cost % = 30 %
How to know your Ideal Food Cost Percentage
First of all if you see that your food cost % is extremely high or low , something like under 25% or over 35 %, there might be something wrong with the inventory value. Check that first because it’s very easy to miscount some product , I personally had this issues many times 🙂 .
Now that you know what is your food cost percentage you need something to compare it with.
There are 3 main options to compare it and you could and should use all 3 if possible.
#Compare it with your Theoretical Food Cost
At this point you should already know how much every single item on your menu costs. If not using a recipe and calculate the cost of every single ingredients is the best solutions to do that ( read this chapter if you don’t know how to do it ).
Now for every single menu item calculate their theoretical food cost and sum them up at the end.
Menu Item Theoretical food cost = Cost of menu item * Amount Sold
Now divide it for the total sales and you will have the % of theoretical food cost
Theoretical food cost percentage % = ( Theoretical food cost / Total Food Sales ) *100
Theoretical food cost percentage % = ( 1501 / 6000 ) *100
Theoretical food cost percentage % = 25 %
As you can see we should have had a food cost % of 25 and not 30 as we calculated before.
The difference is that the theoretical food cost doesn’t take in considerations over food waste, theft and other factors that could impact this number.
If there is a big difference between the 2 numbers you should investigate more to understand what happen.
#Compare it with your Budget
Periodically compare it with your budget to see if you are in line with your expectations and if not try to understand why .
We had once a large difference on what we expect and what we actually had in terms of food cost, we found out that one of the main supplier increase some of the prices of the items that we were most selling.
We didn’t notice the change and they didn’t notify us. As a results our prices were not right anymore and this made our food cost % skyrocket for a few months.
#Compare it with Industry Benchmarks
There are different websites that offer specific reports , sometimes you have to pay for it but are valuable information, on your industry benchmarks.
On those reports you can find different useful information, one of those are for example the food cost %.
Make sure that you compare it with similar concepts in the same country.
The most common factors that increase your Food Cost Percentage
Here you find a list of the most common reasons why your food cost might be to high. Following the next chapter you will learn how to prevent these typical problems to occur.
That you like it or not, theft happen more often than what you think. Sometimes just a bottle of alcohol or just a bag of potatoes. As unpleasant as it sounds, we still must be aware that employee theft happens.
Sometimes poorly trained employees can lead to over wastage. For example if one of your cook doesn’t know how to properly clean the fish, the results will be to have much less product available to be cooked and sold.
Even if small, wrong portioning might increase your food cost a lot in the long run.
As busy as we always are in this industry sometimes I know we might didn’t have the time to check if the prices that we agreed with the supplier are actually respected in the invoices. They could also make mistakes and put the wrong prices, it happens a million time to me.
Sometimes also the price of a specific good increased , and maybe the supplier didn’t notify us of this change. As a result , if we don’t notice that and we leave the selling price as it this, your food cost will obviously increase.
If the service team is not in a good shape and their taking a lot of wrong orders, as a result you’ll not be able to sell those dishes and the food cost will increase.
If you store your product in the wrong way, maybe wrong temperature, humidity etc… , these goods might not be available at the moment when we need them. Same could happen for beverage cost, if for example your wine cellar doesn’t have a temperature control, you might end up with a lot of wines good only for cooking.
#Wrong Price Menu
Calculate wisely your menu prices, otherwise you will have issues with your food cost.
#Not mixing low and high cost ingredients on the menu
Some menu item will have a higher food cost % , to keep a balance you should a have the right mix of items. Selling also items with lower food cost % will help you balance your menu percentages.
#Poorly trained cooks
This might also be the cause of wrong portioning and over wastage but also if your cooks burnt too many dishes it will influence your food cost. Make sure to give proper training or to recreuit already well trained staff.
How to Reduce Your Food Cost Percentage
Most of the problems just described are part of one process knows as the supply chain.
The supply chain of your restaurant is a set of complex interrelated tasks that ensures the operation has the right product at the right time, at the right cost and in the right amounts.
Control and plan every step of your supply chain to avoid those problems.
Now that you know how to calculate your food cost percentage, here you have some ideas on how to lower it:
A recipe will ensure the same quality for every dish you deliver ( or cocktail if you are a cocktail bar) whilst at the same time will give you the chance to know the exact cost of that dish and therefore calculating the right price for that item. On this post chapter you can see how a proper recipe should be done
#Use product specification sheet
No that you have created a proper recipe we want to make sure that we maintain that quality and cost, and the only way to do that is by specify the products that have be used.
A product specification sheet will have all the details of a specific product and will be essential through the different steps of the supply chain. It will make sure that there are no misunderstanding between the purchaser, the supplier, the receiver, the production staff and finally the service staff.
#Use portion control tools
The use of portion control tools should be require to ensure product consistency and to control food cost. Specify the exact tools they have to use in every recipe.
#Train your staff
As logic as it sounds, training your staff to use recipes, use the adequate portion control tools and explaining them why we need to do that, will improve their performance and decrease the food cost %.
#Learn how to price your menu items
This is gonna be one of the very next articles you will find on this blog. To sum up the concept you, in order to calculate the perfect price, you should consider the cost of production of a specific menu item, your desired food cost %, your unique selling proposition and of course what the market will bear.
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#Conduct regularly Inventory checks
The only way to keep your food cost always under control is to make those inventory checks as often as possible. Once a week will be perfect but otherwise at least once a month.
#Find the right supplier
Look for a supplier that apart from the right product will also have all the other requirements you need. For example make sure that the payments methods are accepted by that supplier, that the minimum quantity match what you will order, that they have delivery frequency and timing compatible with your restaurant.
#Forecast your purchases
Forecasting will definitely help you planning your purchases. When forecasting base your data on the data of your point of sale POS. You should know also your business flow over time, day by day, week by week etc.
Identify special events or activities in your community that could impact your food and beverage operation. Also identify which menu items sells more and which sell less. Finally compare your forecasts sales mix with your actual sales mix.
#Utilize daily specials
To test new plates but also to upsell menu items which ingredients are due to expire.
#Inform your staff
Inform your staff of the daily specials but also if we need to push certain menu items. If for example in October you sold many lobster tartare, which have a food cost % of 33 % , and you want to lower that percentage, you might want to tell your waiting team to push on the sales of a lower food cost % dish, for example the pasta bolognese.
If you also want to know how to price and build your winelist, you should have a look at this post .