How to Calculate Food Cost? | Food Cost Formula To Increase Profit
How to Calculate Food Cost? – The average restaurant spends 20 to 40% of its food revenue.
There is nothing worse than working and earning money, right?
As a restaurant owner, your priority is to satisfy customers. But your main financial priority is to earn maximum profits while cutting costs.
The cost of food makes up the bulk of your restaurant’s expenses. The important metric of a restaurant is to monitor the percentage of the price of your food.
With the right formulas and resources, you can easily calculate the percentage of the cost of a meal – and lay the foundation for financial improvement in your restaurant.
In this post, we will share our formula on food cost percentage and show you how to calculate food cost percentage.
Also Read: What Are The Components Of A Healthy Diet?
What Is Food Cost?
The cost of a meal is the price of revenue earned from the sale of a restaurant’s goods (food inventory) and menu items (food sales). The cost of food is always expressed as a percentage of the cost of food, which we will discuss below.
Some restaurants use the cost of a meal to determine the cost of preparing a dish for a restaurant, while others use the items sold (to measure the total inventory used to make the dish, including toothpaste, napkins, and decorations.
What Is Food Cost Percentage?
The percentage of food expenditure refers to the ratio of your income to the purchase of food and beverages for your restaurant. The percentage of the cost of food can be calculated in several ways.
The percentage of total expenditure estimates the price of all foods in your restaurant and the total revenue over a period of time. Think of the total percentage of the cost of food as your high school GPA.
Your GPA is an overview of your academic performance, but it does not provide much insight into which subjects you excelled or struggled with.
On the other hand, the percentage of the cost of a dish meal is like your report card: an object-by-object breakdown of your classroom success.
You may be good at math (which equates to a low percentage of the price of food for your restaurant’s chicken fritters) but not the best in history (a higher percentage of the food cost of your fried lamb).
You can use food cost percentage data to dominate your overall food costs and find out which foods you can still charge.
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How To Calculate Food Cost?
To calculate food cost, you must first have the value for the following items:
- Getting Started with Inventory Price: The dollar amount of inventory you purchased at the beginning of the week.
- Purchase: The dollar value of the investment you made throughout the week and not part of your initial list.
- Inventory Results: The amount of inventory remaining over the weekend.
- Wholesale Food Sales: The dollar value of your sales for the week can be found in your sales statements.
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Food Cost Percentage Formula
To calculate the cost of a meal, first add the value of your initial list and the value of your purchase, then subtract the value of your finished list from the total. Finally, divide the decision into your wholesale food sales.
(Beginning Inventory + Purchases) – Ending Inventory
Total Food Sales
How to Calculate Food Cost: Example
Let’s see how James’ Food Restaurant would calculate their food cost percentage using these values:
- Beginning inventory value = $15,000
- Purchases = $11,000
- Ending inventory value = $19,000
- Total food sales = $12,000
Food cost percentage = (15,000 + 11,000) – 19,000 / 12,000
Food cost percentage = 26,000 – 19,000 / 12,000
Food cost percentage = 7,000 / 12,000
Food cost percentage = 0.583, or 58.3%
58% of James Food Restaurant’s food costs, ie 58.3% of their revenue goes to pay for the ingredients. This was above the industry average for restaurants, and James wondered if he should change the price of his menu.
To know for sure, he has to calculate his best food expenditure percentage and compare it to his actual food expenditure percentage.
Also Read: 10 Easy Ways To Reduce Food Wastage
Why It’s Important to Calculate Food Cost?
Knowing the percentage of the cost of the meal will allow you to make the right decision about menu pricing which will affect your price.
Here are some reasons why it is important to know the cost percentage of your food.
Knowing the food cost percentage will help you understand how much you are spending on food expenses associated with other restaurants, and it will also help you understand the profitability of your menu items.
How to Make Managing Food Costs Easier
It is difficult to calculate the percentage of food expenditure. You need to keep track of your inventory, view invoices to track food costs, and review reports to see how much you bring to sales. Even the most organized restaurant will find this calculation a dream.
Unfortunately, technology has made it easier to calculate food cost percentages and easily manage food costs. Not only does it serve as your digital cash register, it can also calculate a restaurant’s POS food cost percentage, price of goods sold, price per dish and more. Instead of learning the old school way, you can find out the percentage and margin of your food cost in seconds.
Learning how to calculate the percentage of food costs will work wonders for your bottom line. Once you know how much a menu item costs in your restaurant, you can upgrade the menu prices to increase your revenue range.
The more you know about your restaurant’s finances, the percentage of food, the price of goods sold and the base cost, the easier it will be for you to make decisions about prices, inventory, marketing, and purchases.