The best way to control what you spend on food is the so-called food cost formula.
As a restaurant owner, you know that hat product stocking is the highest cost. Monitoring and controlling your food cost is key to running a successful restaurant. If you buy expensive high-quality ingredients, you will have to raise the prices of the dishes on your menu. Consequently, you may price yourself out of the market, and your sales may drop. If you do the opposite and you keep prices unchanged, your profits will fall.
But how do you calculate food cost?
How can you manage your food costs and ensure that they remain within reasonable limits?
With the food cost formula!
In this article, we’ll explain to you in detail what exactly the food cost formula is and how it can help your business.
|Table of contents|
|1. How to Calculate Food Cost in a Restaurant|
|2. How do you calculate food percentage in your restaurant? An Example|
|3. How to Use the Food Cost Formula to Be More Profitable|
|4. It’s Time to Increase Your Restaurant’s Profits|
How to Calculate Food Cost in a Restaurant
The food cost formula is a simple and efficient way to calculate food costs in a restaurant, keep an eye on your food expenses, and prevent them from escalating.
Think of it as a food cost calculator.
The result of applying the formula is a percentage, meaning that a certain percentage of your total restaurant expenses will go towards food purchases.
Food Cost Formula
Food Cost Formula = ( beginning inventory + food purchases – ending inventory) / food sales
To calculate the Food Cost Percentage, multiply the result by 100.
What is a good food cost percentage?
While this could differ for every restaurant, it would usually be in the region of 28% to 32% of your total food sales. The percentage could be even lower for certain types of restaurants.
How do you calculate food percentage in your restaurant? An Example
This example would clarify the calculation. Imagine your restaurant reflects the following data:
- Value of inventory at the beginning of the week: $7,000
- Purchases during the week: $3,000
- Inventory seven days later: $6,000
- Food sales in the week: $16,000
Now, let’s use the formula:
Food Cost Formula = ( beginning inventory + food purchases – ending inventory) ÷ food sales
Food Cost Formula = ($7,000 + $3,000 – $6,000) / $16,000
Food Cost Formula = ($4,000) / $16,000
Food Cost Formula = 0.25
Food Cost Formula = 0.25 x 100 = 25%
Your food cost percentage is 25%.
Of course, when you are using the food cost formula, it is crucial to ensure that you value your opening stock, closing stock, and purchases, as accurately as possible.
Additionally, carry out the exercise of valuing your opening and closing stock at precisely the same time every week so that your results are consistent.
How to Use the Food Cost Formula to Be More Profitable
Now that you have your food cost percentage, how can you use it to track costs?
How can you put the food cost formula into practice to see a real decrease in your costs?
Monitoring weekly results will help you to see if costs are rising or falling. This will help you know when to pay closer attention to your purchase practices and the prices you are paying.
This said, the first thing you should do is managing your food inventory.
How to improve your food cost percentage
Here are some specific steps that you can take:
- Use at least two suppliers for each item that you buy.
This will allow you to keep track of market prices. You can also reduce costs by buying more from the lower-cost supplier.
- Ensure that your receiving controls are in place
When stocks are delivered, they should be checked for quantity. It is also essential to see if they are of the grade that you have ordered. Devise a checklist that the person receiving the delivery can use.
Negotiate with your suppliers
You can sign long-term contracts to reduce the prices, or you can team up with another restaurant in your area to buy ingredients in bulk and then divide them. Learn here some useful techniques to negotiate with your suppliers.
- Produce part of your ingredients yourself
If you have enough space in your restaurant to have a small orchard or winter house, consider growing some of your products to save some of the money you allocate to buy fresh produce. Some vegetables, and especially herbs, don’t require a lot of care or a green thumb. Also, this is an excellent marketing technique: customers enjoy the fact that the cilantro in the dishes grows in the house or that the tortillas are fresh and homemade.
- Wastage and theft could be an issue
It is advisable to develop standard systems and procedures to monitor this (for example, installing security cameras in your storage area).
- Reduce your menu
It’s a fact: customers prefer a reduced but well-organized and balanced menu rather than an overwhelming number of choices. By reducing the number of dishes on your menu, you can make better use of your ingredients and reduce the waste of those ingredients you never use. You can learn here how to reduce or improve your menu, or in other words, how to do a menu audit.
Price accordingly your restaurant menu
If you have a very popular dish, consider increasing the price, and if one of your dishes is not selling, reduce the price. Keeping a close eye on which dishes are selling or not selling can help you eliminate some ingredients from your shopping list, reducing your food cost. This takes us to the following point:
Buy the same ingredient in larger quantities
In your menu, you can offer the same ingredient with different elaborations. That will allow you to buy that ingredient in larger quantities for a reduced price and eliminate other ingredients from your shopping list.
It’s time to increase your restaurant’s profits
These practices, along with the food cost formula, work best when they are used regularly. Remember that you should not just calculate the food cost percentage and leave it at that.
Use the information to identify the items that are leading to an increase in costs. You can then try and locate other lower-cost suppliers for these purchases. Every amount that you save will go towards increasing your profits and thus help your business grow.
We hope this article helps you have a better grip on your food costs. To receive more useful tips to manage your restaurant better, subscribe to our Newsletter. It’s completely free, and every week you’ll receive in your mailbox the latest trends in small business and tools and resources to grow your restaurant.