Restaurant space is full of words that one might not be familiar with, and the restaurant glossary is here to simplify it all for you. It will help you keep up with updated restaurant industry lingo.
Food Cost Percentage
What is food cost percentage?
Restaurant owners should find the right balance between satisfying customers, increasing sales, and cutting costs. The food cost percentage is one of the important concepts you need to grasp in order to create appropriate menu prices.
This crucial metric displays the amount of your total sales that are spent on ingredients and food supplies. You can adjust menu prices and increase revenues by keeping track of your food costs.
The cost of operating a restaurant includes a significant portion of the cost of food, so monitoring your food cost percentage is a crucial restaurant metric.
Why is calculating food cost percentage important?
- Being smarter with money
You may determine whether each menu item falls within your food cost margins by pricing each item based on COGS and the percentage of food costs. As a result, you’ll know which menu items to advertise and which are the most profitable.
- Effectively plan your menu
You can alter menu items that are no longer profitable thanks to data on food cost percentages that is incorporated into your restaurant POS system. You can gain the knowledge you need to create a beneficial menu price plan through menu engineering based on the percentage of food costs.
How to calculate food cost percentage?
The cost of products sold is multiplied by the revenue or sales from the final dish to arrive at the food cost percentage. The sum of money spent on supplies and inventory over a specific time period is the cost of goods sold.
Here is an example to see how the food cost percentage formula works:
Beginning Inventory = $20,000
Purchases = $5,000
Ending Inventory = $22,000
Food Sales = $10,000
Food Cost Percentage = ($20,000 + $5,000 – $22,000) ÷ $10,000
Food Cost Percentage = $3,000 ÷ $10,000
Food Cost Percentage = $0.30 or 30%