Food costs are one of the most important numbers for any restaurant owner or manager to understand. This number can give you a clear picture of how well your business is doing and where improvements can be made. In this blog post, we'll discuss how to calculate actual food cost and some common factors that can affect it. We'll also explore the benefits of calculating your restaurant's food cost percentage. Stay tuned!
What are food costs
In the restaurant industry, food cost is the percentage of money spent on food and beverage products in relation to the sale price of those items. For example, if a restaurant spends $100 on food and drink items and sells them for $200, their food cost would be 50%.
Ideal actual food cost
Ideally, your restaurant's actual food cost should be lower than your menu prices. For example, if you're selling a burger for $10, you don't want your food cost percentage to be 50%. The ideal food cost percentage will vary depending on the type of restaurant you have, but a good rule of thumb is around 30%.
What about drink/cocktail costs?
Your restaurant's food cost percentage should not include the cost of alcoholic beverages. The reason for this is that alcohol has a higher profit margin than food, so it's important to keep track of it separately.
Common factors that affect your actual food costs
There are a number of factors that can impact your food cost percentage.
-Type of restaurant: Fast-food and casual restaurants typically have a lower food cost percentage than fine dining establishments. This is because they tend to use cheaper ingredients and have smaller/more consistent portions.
- The quality of ingredients you're using
- higher quality ingredients will generally cost more
- If you have expensive items on your menu, your overall food cost will be higher
- Waste: both in terms of ingredients and finished dishes, wasted food will increase your costs
- Portion sizes: if you're giving away too much food, your costs will go up.
How to calculate actual food cost
There are two ways to calculate your restaurant's actual food cost: actual and theoretical costing. Actual costing involves taking the purchase price of each ingredient used in a dish and adding them up. This method is more accurate, but it can be time-consuming. However, at the end of this blog, I will show you a method to calculate your actual food costs using the actual food cost method 5x times faster than the theoretical one (and costs will always be updated!). Plus you will never need to remember the theoretical food cost percentage formula!
There's also the theoretical costing method. It uses a standard formula to estimate your theoretical food cost percentage based on the overall sales mix of your menu items. This method is less accurate than direct costing, but it's much faster.
To calculate your theoretical food cost percentage using the indirect method, you'll need to know three things:
- Your restaurant's total food sales for a period of time
- The total cost of all the food purchased during that time period
- The total number of menu items sold during that time period
How to calculate your theoretical food cost percentage
Here's the food cost percentage formula: (Total food cost / Total sales) x 100 = Food cost percentage
For example, let's say your restaurant had total food sales of $5,000 for the month of January. The total cost of all the food purchased during that time period was $2,500. And the total number of menu items sold during that period was 1,000.
Let's calculate food cost percentages.
Let's circle back on that food cost formula: Total food cost / Total sales) x 100
You would take the total cost of food ($2,500) and divide it by the total sales ($5,000). This gives you 0.5. To convert this to a percentage, you would multiply it by 100, which gives you 50%. So in this example, your food cost percentage would be 50%.
Now that you know how to calculate your restaurant's theoretical food cost, you can start working on reducing it! There are a number of ways to do this, and I'll go over some of them below.
Food cost control: How to lower your food cost percentage
Fortunately, there are a number of ways to lower your control food cost percentage without sacrificing quality or taste.
Some food cost control tips include:
- Use seasonal ingredients - they'll be less expensive and more flavorful
- Get creative with cheaper cuts of meat - they can be just as delicious as the more expensive cuts if you know how to cook them properly
- Reduce portion sizes - this can be a great way to save money without affecting the taste or quality of your dishes
- Minimize waste - both in terms of ingredients and finished dishes
- Use technology to your advantage - there are now a number of restaurant management software (like WISK) that can help you track your food costs and inventory, making it easier to spot areas where you can save money.
By following the tips above, you can start to lower and control your restaurant's food costs.
There's also the actual food cost formula:
(Direct ingredients cost + Direct labor cost + Overhead) / Total number of menu items sold = Actual food cost per menu item
For example, let's say the total cost of all the ingredients used to make a dish is $5.
The total labor cost (including both prep and cooking time) is $2.
And the overhead cost is $1.50.
If you add all of this up, you get an actual food cost per menu item of $8.50.
While this method is more accurate, it can be time-consuming to calculate the actual cost for each dish on your menu.
We go into an alternate way on how to calculate your food costs in this blog post.
What is food cost variance
Food cost variance is the difference between your actual food cost and your theoretical food cost. For example, if your theoretical food cost percentage is 20% and your actual food cost percentage is 25%, then your food cost variance would be 5%.
A high food cost variance can be caused by a number of factors, including waste, portion size, and menu mix. To get your food cost variance under control, you'll need to identify the root cause of the problem and make changes accordingly.
For example, if you find that your portion sizes are too large, you can adjust them accordingly. If you find that there is a lot of waste in your kitchen, you can work on reducing it. And if your menu mix is off, you can make changes to your menu to better reflect what customers are actually ordering.
As mentioned earlier: here's a how you can always get your costs updated in real-time. With WISK, the trusted inventory management software, you can get your actual food costs instantly. Simply send us all your recipes, and we will enter them for you. Then scan your invoices and our team will enter the line-item data for you. Finally all you will have to do is confirm. WISK will update all your recipe costs for you.
Knowing how to calculate your restaurant's actual food cost percentage is essential for any successful restaurant business. By understanding how to calculate food cost percentage and how it's related to other factors like menu mix and portion size, you can make the necessary changes to reduce your theoretical food cost variance and improve your bottom line.
See your ROI prosper as you elevate your restaurant's approach to calculating actual food costs. Your commitment to precision and cost-efficiency is not just improving recipes; it's shaping the financial success of your establishment.