How to Calculate Food Cost in a Restaurant
One of the most essential parts of running a successful restaurant is keeping your food costs manageable. Of course, you can’t do that unless you know what you’re currently spending on food. Lucky for you, we have all the information you need to calculate your restaurant’s food costs and how to optimize it to improve your restaurant’s revenue.
How Do You Calculate Food Cost In a Restaurant?One of the most substantial expenses a restaurant will have is the cost of food, so management must always keep track of their food costs. There are two main ways to calculate it: using a recipe or menu item or calculating your food cost percentage.
Calculating Food Costs Using a RecipeThe most straightforward way (in theory) to calculate food costs is to calculate them as you would budget for a meal at home. You take a look at your recipe and calculate the cost of each item - this will give you the cost of your menu. However, if you’re looking for a more detailed food cost per meal, you can determine how many servings you can get with each food item to calculate the cost per serving. While this may seem simple for a single recipe, calculating each meal for a restaurant can be a little more challenging.
Challenges With Calculating Food Costs Using a RecipeAlthough, in theory calculating food costs using a recipe as we outlined above sounds simple, several other factors play into final food costs. This method doesn’t account for spoiling or expired food that will need to be thrown away, or for differences in portions served to customers. You will also have to recalculate food costs every time you switch suppliers or brands as their prices, sizes, and bulk discounts will all vary, so this method isn’t very scalable. The other issue with calculating food costs this way is it’s almost impossible to determine how much of each primary ingredient, like oil, salt, and spices, is used for each dish.
Calculating Food Cost PercentageThe better way to calculate food costs for restaurants is a more scalable method known as food cost percentage. This involves tallying all your food costs and approaching the total as a percentage of your total revenue. To calculate the percentage, you’ll take your food cost total and divide it by your total revenue. It should be between 25% and 40% of your total revenue to leave you with plenty of a profit margin.
Optimizing Food Cost PercentageNow that you’ve calculated your food cost percentage, what do you do with it? If you’re in the optimal range of 25% and 40%, you really don’t have to do anything, unless your other costs are putting your restaurant in the red. If they are, you should evaluate your food costs along with all your other expenses. If you are spending too much on your food, try manipulating the costs with one of these methods:
Raise Your Menu PricesYou very well could be undermining your menu prices. Ensure that they’re up to market standards and that they make sense for the area of town you’re in. You can also raise your prices gradually to ensure you don’t lose your regular customer base.
Shop AroundThe current vendor you’re using for your food supply may not be the most affordable on the market. Shop around for different vendors that offer the same quality of food you’ve come to expect. You don’t always need to cut quality to see savings.
Reduce FreebiesIf you currently provide bread and butter for free or include extra sauce in every to-go order, consider changing your policy to a request-only basis. This means that you still have complimentary food items available, but customers need to request them to receive them. This works out great for both restaurant owners and customers as the customers won’t feel shorted, but your restaurant isn’t giving away food to people that aren’t interested in it.
Reevaluate Portion SizesWe’ve all been to restaurants where the portion sizes are too large for anyone to eat, so it’s not too farfetched to believe your restaurant portion sizes may be too big. Start paying attention to how much food goes uneaten on your customers’ plates. If you start noticing a trend of excess leftovers, it may be time to reduce portions.
Take Advantage of SeasonalityConsider altering your menu as the seasons change to take advantage of food that’s in season and cheaper. Because seasonal food is almost always going to be cheaper than food that’s not in season, you can save a lot of money by switching to this type of menu.