It is essentially important for all restaurants to calculate its food cost and make the appropriate changes in the menu pricing. Why all restaurants must calculate the food cost is precisely because of the fact, that if you don’t, you can lose out on a lot of money and this will, in turn, increase your overall restaurant expenses. However, calculating the food cost of your restaurant isn’t an easy task, and more often than not, most restaurant owners are not aware of the correct food cost formula that will help then to detained the cost at hand and this has the potential to pave the path of your restaurant towards an eternal doom. However, don’t you need to worry, we are here to help, and make your calculation a cakewalk.
Explained in a simple manner, a food cost is essentially the total cost of your food net of the existing inventory. Most of the times if not always, beverage costs are not included and are counted separately. In percentage, the food cost is essentially a restaurant’s total food purchase divided by the restaurant’s total sales.
Why is the Food Cost Formula Important?
We all know that’s calculating the restaurant food costs helps in maintaining a healthy business. However, calculating it with the help of proper food cost formula can help you achieve accuracy which can help you to reduce your overall expenses. One must understand the various ways this action will come in handy. The reasons why calculating food cost is important are:
- Food cost determines a restaurant’s profitability. Without knowing the prices of the items, and the menu costs at the end of the different periods, it will be very difficult for you to run and track a highly profitable restaurant, and knowing where you need to make adjustments and changes which will help you to garner more profit.
- Lower food cost means higher profit and this makes it imperative to track food costs.
- It helps you to properly price out your menu items.
- Once you properly price your menu items it will help you to optimize your menu as when required. This is essentially called menu engineering. Just by moving thing in the menu, by putting items in boxes, and highlighting a few items can do wonders and help you to increase your profits to a great extent.
There is this myth around food cost. People think that food cost is the amount a restaurant spends on food. You will be getting a very false and varying number if that is how you are determining your restaurant food costs.
The Formula to Calculating Food Costs
Before going about calculating the food cost of your restaurant, you must understand the different types of food cost that exists, There are two types of food costs in your restaurant and bar:
1. Food Cost- Plate Cost
Plate cost, this is extraordinarily easy to understand. Plate cost is essentially the amount you receive after dividing, the cost you incurred in preparing a dish divided by the price at which you sold the dish. To find the percentage, you will then have to multiply this amount with 100.
And every restaurant without fail must know how much each plate, each item or each drink cost. The formula with which you can calculate it :
How much did it cost for you to prepare a dish/How much did you sell it for
= Food cost or the plate cost
For example, a burger costs you 2.00$ to prepare/ and you sell it for 8.00$ = .25 is your food cost.
Now, to know the food cost percentage : .25 X 100= 25%
So the food or the plate cost for that particular burger is 25%.
2. Food Cost – Period Cost
Period cost, this is a little more complicated, however, it is extremely important for you to keep a tab on this as well. Period food cost is essentially the cost you incurred on food in a particular person, be it a month or a quarter. But if you want to determine the period food cost, you will have to understand the COGS (Cost of Goods Sold) formula. Period costs can be used to determine the period for any category in your restaurant.
Here’s the COGS Formula for your convenience:
Beginning Inventory + New Inventory Purchased – Ending Inventory
= Total Food Usage in a particular period.
Once you have the total amount used, you can find the Cost Of Goods Sold by :
Toral Food Usage/Total Food Sales = COGS.
To calculate the COGS in percentage, multiply it with 100:
COGS X 100= COGS%
Period costs can be used to determine the period for any category in your restaurant. Period cost can be used to determine your food cost, your beer bottled cost, your beer draft, and your wine bottled cost, your wine glass cost, your liquor cost as well as your, merchandise cost.
When you are using the COGS formula to calculate the food cost make sure, you are comparing the correct category purchases and inventory to the correct category sales. Another important thing that you must keep in mind, make sure that you are comparing the correct inventory and purchase period to the correct sales period.
For example, if you want to calculate the period food cost for the month of June, this is what you need to do:
June food beginning inventory + June food purchases – June food ending inventory = June’s total food usage
Now ones you have the June’s food usage you can apply the COGS formula to understand the cost of the goods. For this you need to :
June’s food usage / June food sales = gives you the COGS
Multiply it will 100 to know the COGS in percentage.
Once you have your food cost in place, you can bring in all the necessary changes that will further bolster the sales of your restaurant. When you are aware of your most selling and your least selling menu items, you can apply menu engineering aptly and replace the least selling items with more varieties of items in demand. This will help you to reduce your overall expenses. Hence, use the above food cost formula mentioned and apply them appropriately and see how to keeps your cash registers overflowing.
Also, use this ready-made Food Cost Calculator to calculate your restaurant food costs.