Food cost is the cost of all the raw materials, labor, and overhead needed to produce one unit of food. In the restaurant industry food cost or cost of goods sold (COGS) is the ratio of the cost of raw materials or inventory required to prepare menu items and revenue generated by the sale of those menu items. It is expressed in terms of food cost percentage.
Why is food cost so important?
Food cost is one of the key metrics that help restaurants plan their expenditure and create the best possible customer experience. For the average profit of 3-5 percent, the industry's general thumb rule is that the cost of goods sold should not exceed 25 to 35 percent of every dollar earned by a food business. On average, a restaurant spends almost 75 percent of its total food sales in managing its labor and food costs. Food costs help in determining the food menu, as well as the portion cost. Not just the menu, but innovation in menu items and menu prices play a part in creating an optimum customer experience and increasing sales. There's no doubt that a restaurant with the cost of goods sold under control will be able to offer a great customer experience.
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How much does food cost?
Food cost is not a simple math of the cost of ingredients or raw material used in menu items. It speaks about a business' total food sales as well as efficiency in managing the supply chain, making informed decisions, effective measurement of beginning and ending inventory. Food cost percentage tells how much a restaurant has made on the sale of a given menu item. The industry benchmark for food cost percentage varies between 25 to 30 percent and in some cases goes up to 40 percent.
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What you should spend on your food cost
How much a food business spends on food inventory will depend on a couple of key pillars like the size of the business, cuisine offered-exotic or fast food, whether you offer a fixed menu or seasonal menu. Fixed menu items help in maintaining stable food cost percentage over a fixed period.
The sale of off-season items results in higher food sales as you may be able to upsell your menu items. However, you'll need to engineer your menu in such a way that non-seasonal items offset the higher portion cost seasonal items. It's important to closely monitor the inventory movement or the quantity ordered. Any surplus may result in food wastage and inflate the businesses' food cost. If innovation in menu is your unique selling proposition, then you will continuously need to keep updating your menu items periodically, and will need to be on your toes to keep the menu prices reasonable, as well as prevent high food costs.
It is normal for any restaurant business to pursue and drive total food sales, but mindfully monitoring food costs accurately makes business sense. Any misrepresentation will have far-reaching consequences on our business. To start with, one may not even realize that the variance between actual food cost and ideal food cost can hurt the business' bottom lines.
The actual food cost is a theoretical formula for calculating a tentative food cost, the data for which can be supplied by a system tracking the inflow of food stocks. An integrated Point of Sale (POS) will share the sale figures of the given period for which the cost of goods sold is to be calculated. The gap between actual food cost and ideal food cost takes you closer to the food cost which is realistic and may not be what you have been spending over that given period of time. It helps you narrow down on the revenue leakage and plug the gaps, and help your margins.
Food cost formula How to calculate your food cost percentage
By now we all know that using the food cost percentage and accordingly fine-tuning the food management can deliver us optimum business returns.
Let us now get into calculating the actual food cost percentage, ideal food cost percentage and understand the variance- which will help us understand the revenue leakage if any.
Actual food cost calculation for a week-
Actual Food Cost = Beginning inventory of the week + Purchases or ending inventory of the week
For example-
Restaurant A's total weekly sale of food items amounted to $14,000 The beginning inventory - Worth $6000 Goods purchased- Worth $2,000 The ending inventory- Worth $3000
Actual food cost = $6000+ $2000= $8,000- $3000= $5,000 We know that the weekly sale of food stood at $14000
The formula for actual food cost percentage is-
Actual Food Cost percentage= ((inventory at the beginning of the week + Purchases) inventory at the end of the week)Food sale X 100
$500014000= .35 X 100= 35%
Ideal food cost calculation for a week-
The ideal food costs take total costs and sales into consideration, unlike the actual food cost in which the beginning and ending inventories are key metrics.
The formula to calculate the total cost and total sale for a week will be as follows-
Food cost per dish =Food cost of ingredients x Weekly amount sold
Total sale per dish= Sale price x Weekly amount sold
The ideal food cost percentage can be calculated based on the following formula-
Ideal Food Cost Percentage = Total cost per dish Total sale per dish
For example-
Total cost per dish= $2,200 Total sale per dish= $7000
Ideal Food Cost percentage = 2,200 7,000= 0.31 or 31%
The variance between the Actual food cost percentage and Ideal food cost percentage is as follows- 35-31= 4. The optimum Actual food cost will be something matching the Ideal food cost or even below it.
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How to reduce food cost in restaurant management?
The three key elements of kitchen operations that go a long way in reducing food cost percentage are menu engineering, employee education, and cost-cutting measures. These are the value system of any kitchen operation and shape up the kitchen culture. Some of the factors that affect the kitchen culture and influence the overall food cost percentage are-
Food wastage- This is one problem that can significantly impact food costs. Food wastage can be dealt with by consistently tracking and monitoring the beginning inventory and ending inventory. Follow the First-in-First Out method to check expiry or spoilage. Large leftovers at the tables for clearing may be an indication that you are over portioning. Training and monitoring of the kitchen staff are also important to ensure that food is also not wasted during the preparation time
Employee Theft- Ignorance is not always bliss. Any kind of theft in the inventory items will have a direct bearing on the food cost. Even the meal given to employees has to be accounted for.
Portion control- The kitchen staff will need to maintain consistency in using ingredients in preparing a menu. Ensure they weigh the ingredients correctly before use.
Overcharging by vendors- Source ingredients from multiple vendors and stay aware of the market price across sources. Be wary that while continuously buying from a single vendor, you do not miss out on the discounted pricing offered by competing vendors. You can also increase your bargaining power and reduce your cost of goods sold by joining a purchasing group.
How to manage food cost in a restaurant?
To understand your food cost control, it is crucial that you strictly manage all the data pertaining to your inventory purchase, menu price, cost per plate or portion cost, sales, creates insightful forecasts, etc. This can be done either manually or through inventory management software which can be integrated with your POS and accounting system. An ideal food cost management offers transparency, consistency, and accuracy for cost-effective and intelligent decision-making. Automated software can guarantee restaurant owners simplified inventory management for supply chain automation and food cost optimization
Use food cost calculator to optimally manage your food costs and up your profit margin.
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People also ask
What is food cost and its formula?
The food cost formula is a mathematical equation used to determine the cost of a unit of food in terms of units of labor. The equation's purpose is to provide an alternative way to calculate the cost for any given budget by using a very specific set of variables. It is being widely used as a benchmark for calculating how much money goes into different aspects of food production, processing and distribution. The equation is made up from two components- labor costs and fixed overhead costs (such as depreciation or rent). The formula looks like this- cost per unit = (fixed overhead costs / hours worked) * (units produced)The food cost formula is a mathematical equation used to determine the cost of a unit of food in terms of units of labor. The equation's purpose is to provide an alternative way to calculate the cost for any given budget by using a very specific set of variables. It is being widely used as a benchmark for calculating how much money goes into different aspects of food production, processing and distribution. The equation is made up from two components- labor costs and fixed overhead costs (such as depreciation or rent). The formula looks like this- cost per unit = (fixed overhead costs / hours worked) * (units produced)The food cost formula is a mathematical equation used to determine the cost of a unit of food in terms of units of labor. The equation's purpose is to provide an alternative way to calculate the cost for any given budget by using a very specific set of variables. It is being widely used as a benchmark for calculating how much money goes into different aspects of food production, processing and distribution. The equation is made up from two components- labor costs and fixed overhead costs (such as depreciation or rent). The formula looks like this- cost per unit = (fixed overhead costs / hours worked) * (units produced)The food cost formula is a mathematical equation used to determine the cost of a unit of food in terms of units of labor. The equation's purpose is to provide an alternative way to calculate the cost for any given budget by using a very specific set of variables. It is being widely used as a benchmark for calculating how much money goes into different aspects of food production, processing and distribution. The equation is made up from two components- labor costs and fixed overhead costs (such as depreciation or rent). The formula looks like this- cost per unit = (fixed overhead costs / hours worked) * (units produced)
How do you calculate food cost?
It is important to know how to calculate the cost of food. There are many ways to calculate the cost of food and some methods will be better for certain purposes. There are several factors that you have to consider before calculating the cost of food. You should also keep in mind that there are various types of food costs, including direct costs, indirect costs, opportunity costs and sunk costs. To calculate the cost of food, you need to look at the following factors- The method used, the purpose for which it is used, what data sources were used, when was the date of purchase, where was it purchased, who was buying and why they were buying. Then you need to look at what resources were used in order to produce or acquire this good or service and finally how much time was required. Using these variables you can then calculate your total cost using a formula such as- Total Cost = Cost Per Unit * Quantity Produced The total cost would then be divided.It is important to know how to calculate the cost of food. There are many ways to calculate the cost of food and some methods will be better for certain purposes. There are several factors that you have to consider before calculating the cost of food. You should also keep in mind that there are various types of food costs, including direct costs, indirect costs, opportunity costs and sunk costs. To calculate the cost of food, you need to look at the following factors- The method used, the purpose for which it is used, what data sources were used, when was the date of purchase, where was it purchased, who was buying and why they were buying. Then you need to look at what resources were used in order to produce or acquire this good or service and finally how much time was required. Using these variables you can then calculate your total cost using a formula such as- Total Cost = Cost Per Unit * Quantity Produced The total cost would then be divided.It is important to know how to calculate the cost of food. There are many ways to calculate the cost of food and some methods will be better for certain purposes. There are several factors that you have to consider before calculating the cost of food. You should also keep in mind that there are various types of food costs, including direct costs, indirect costs, opportunity costs and sunk costs. To calculate the cost of food, you need to look at the following factors- The method used, the purpose for which it is used, what data sources were used, when was the date of purchase, where was it purchased, who was buying and why they were buying. Then you need to look at what resources were used in order to produce or acquire this good or service and finally how much time was required. Using these variables you can then calculate your total cost using a formula such as- Total Cost = Cost Per Unit * Quantity Produced The total cost would then be divided.It is important to know how to calculate the cost of food. There are many ways to calculate the cost of food and some methods will be better for certain purposes. There are several factors that you have to consider before calculating the cost of food. You should also keep in mind that there are various types of food costs, including direct costs, indirect costs, opportunity costs and sunk costs. To calculate the cost of food, you need to look at the following factors- The method used, the purpose for which it is used, what data sources were used, when was the date of purchase, where was it purchased, who was buying and why they were buying. Then you need to look at what resources were used in order to produce or acquire this good or service and finally how much time was required. Using these variables you can then calculate your total cost using a formula such as- Total Cost = Cost Per Unit * Quantity Produced The total cost would then be divided.
What should my food cost be?
Many factors go into determining how much to charge for your meals. These include the quality of ingredients, portion size, and labor costs. The other issue is what you want to offer your customers. If you want to sell $3 sandwiches, charging $5 might be more than fair. However, if you're looking to offer a healthier meal that is only $5, then it may be worth considering charging less than that.Many factors go into determining how much to charge for your meals. These include the quality of ingredients, portion size, and labor costs. The other issue is what you want to offer your customers. If you want to sell $3 sandwiches, charging $5 might be more than fair. However, if you're looking to offer a healthier meal that is only $5, then it may be worth considering charging less than that.Many factors go into determining how much to charge for your meals. These include the quality of ingredients, portion size, and labor costs. The other issue is what you want to offer your customers. If you want to sell $3 sandwiches, charging $5 might be more than fair. However, if you're looking to offer a healthier meal that is only $5, then it may be worth considering charging less than that.Many factors go into determining how much to charge for your meals. These include the quality of ingredients, portion size, and labor costs. The other issue is what you want to offer your customers. If you want to sell $3 sandwiches, charging $5 might be more than fair. However, if you're looking to offer a healthier meal that is only $5, then it may be worth considering charging less than that.
