Restaurant Food Cost | 4 mins read

A Look into Restaurant Food Costs

a look into restaurant food costs
Dakota Sheetz

By Dakota Sheetz

Calculating Food Cost and Food Cost Percentage

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Calculating food cost and food cost percentage for a restaurant requires a formula. Even if you weren't a math whizz in school, the internet is full of different resources that can be of assistance. You can make use of food cost calculators and even compare your dish costs to those of other restaurants.

Still, it doesn't hurt to know the formula so that you can put it into practice for the most accurate costing exercise.

What is Your Food Cost Percentage?
You can work out your restaurant's food cost percentage by calculating the cost of your goods sold (how much you spent on ingredients and inventory) and dividing it by how much revenue you made from that single finished dish.

The food cost percentage can differ dramatically for each establishment, even more so between table service restaurants and fast-food restaurants. However, in quick-service and full-service restaurants, it can sit between 28 to 32%.

Establish your percentage by working through your inventory-

  1. Use your restaurant's inventory management system to list all ordered food supplies received for the week.
  2. Add up the dollar value.
  3. Track all your purchases and consider other purchases you may have made after starting your inventory check.
  4. Redo the practice at the beginning of the following week.
  5. Combine your total food sales on each shift.
  6. Calculate your food cost with the food cost percentage formula- food cost percentage = (beginning inventory + restaurant purchases ending of weekly inventory) / food sales.
Food cost percentage formula example-
1. Your starting inventory = $10,000
2. Purchases = $5,000
3. Your ending inventory =$12,000
4. Food sales = $8,000

Food cost percentage = (10,000 + 5,000 - 12,000) / 8,000
3,000 / 8,000
= 37.5%


What is Your Food Cost Per Serving?
Knowing your restaurant food cost percentage is one thing, but restaurant owners also need to know what their food cost per serving is. Fortunately, there's a formula for this process as well.

The food cost (per dish) = the price of ingredients x amount sold weekly
Total sales (per dish) = sales price x amount sold weekly

If you've done the math and your figures don't sit nicely, then it might be time to optimize your food cost percentage. You can do this in multiple ways, such as-
  • Slightly raising your prices
  • Updating your menu after identifying your most popular and weakest dishes
  • Loading up on carbs ingredients such as pasta and potatoes are affordable in bulk
  • Shopping around at wholesalers for competitive pricing
  • Adapting your menu with the seasons to save on out-of-season produce costs
  • Study your portion sizes are they too large? Is food being left uneaten?

How to Price a Menu

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It can be both exciting and terrifying to launch a new menu. You want your customers to love it, but you also want it to be profitable. How do you strike a balance between quality and value? Pricing a menu is actually a lot more straightforward than you might think.

Use a Pricing Formula
A pricing formula can make sure that you know how much a single item on your menu costs to produce. There are various ways to go about it, but some are more popular than others.
You could use an online food cost calculator that does all the hard work for you. Alternatively, you can divide the purchase cost of your food products by the number of portions.

Pricing formula example-
You buy 50 pounds of chicken breasts at $1/pound = $50. You use around half a pound of chicken breast per meal = 50c per meal. You do the same for your side dishes to get to a total per-portion cost. Let's say your entire plate costs $3 in ingredients to produce.

Divide your $3 plate by your restaurant food cost. We established above that our fake restaurant was 37.5%.

3 / 37.5% = $8.

Other Things to Consider Before You Set Your Pricing
There is more to pricing a menu than just factoring in your food costs. It's also worth thinking about your indirect costs, such as your table decor, lighting, overhead expenses, marketing, labor, and prep time.

Do your food costs fluctuate throughout the year? What about market research to know how much your customers are willing to pay for something? Your service costs can also impact your menu pricing, especially if you run a fine-dining restaurant.

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Conclusion

There can be a lot of formulas and math involved in establishing restaurant food costs. Putting a price on a menu item is also more involved than many people realize.

Take your time, work out your food cost percentage, and don't forget to factor in those extra costs above and beyond the food-

  • Technology can take care of much of the hard work with calculators and inventory management systems.
  • Establish a formula that can help you accurately calculate your food costs
  • Leave the guesswork out of the equation.

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