A Guide to Calculate Food Cost Percentage
If you price your dishes too high, customers will avoid them. If you price the plate too low, it won’t generate enough revenue to cover expenses. In this post, we’ll talk more about food costs as we go along.
We’ve got the science of restaurant pricing down pat. We know how to set prices to cover your expenses and keep you in business.
If you want to be a successful restaurateur, one of the first things that you need to understand is food cost percentage. This metric helps determine how much money your restaurant spends on ingredients and supplies instead of labor or overhead costs.
We’ll cover how to find the following information and use it to set prices for your menu.
- How to calculate your food cost per serving
- You might be surprised to learn that your food cost percentage is calculated by dividing the total of all costs related to preparing and serving a dish (including labor, utilities, supplies) by its selling price.
- Setting prices can be tricky. It is essential to consider what the customer will pay for and how much you are willing to sell it.
- How to monitor the pricing of your menu and its effect on sales.
- three ways to lower food costs
To better understand food costs, we must know what they are.
Food cost can be defined as the total amount of money spent on groceries and ingredients in a given period divided by the number of units sold during this same time frame. Click To Tweet
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Don’t feel like doing math?
Our free food cost calculator is the best way to set prices for your menu. You can stop worrying about what costs too much and start making money!
What does food cost?
Food cost is the ratio of a restaurant’s food inventory and how much money they make from those ingredients. For example, if you have $10 worth of chicken that sells for $5, your profit margin on that item would be 50%.
Some restaurants base the price of a dish on food cost, which is what it costs to make that one dish. Others use Cost of Goods Sold (COGS), which measures everything from labor and materials used in making a single plate down to utensils like toothpicks and napkins.
Food cost per serving explained
You might think that you know how much it costs to make your restaurant’s food, but before setting the price of each item on your menu, there are some things you need to take into account. Here we will discuss calculating the cost per serving.
Food cost per serving formula
What is the food cost formula? To calculate the food cost per serving, find out how much it costs to make a dish and divide that by the number of servings in one meal.
Cost per serving explained
Johnny of Johnny’s Burger Bar wants to determine the cost per serving for his famous dish, The Johnny. This meal consists of 8 ounces of ground beef, one sesame seed bun with sauce and cheese on top, two slices of tomatoes and potatoes.
Johnny buys his ingredients in bulk and pays $19 for 5 pounds of ground beef. He calculates that 8 ounces of ground beef cost him $1.90 to use on a single burger which means he spends an average of .40 cents per serving on the remaining ingredients.
- $1.90 per pound for ground beef, $3.80lb
- 1 sesame seed bun = $0.25
- 1 tbsp. of sauce = $0.10
- 2 slices of cheese = $0.90
- 2 slices of tomatoes = $0.50
- 2 potatoes = $0.75
The cost of the ingredients to make a Johnny Burger is $4.40.
Food cost percentage explained
Restaessentialto needs to maintain a low percentage of food because this leaves more gross profit and can be reinvested in other areas. In the following section, we will cover:
- What food cost percentage is
- How much food should include a restaurant cost for their customers
- Food cost percentage is calculated by dividing the total food costs for a period of time, typically one month or quarter, by your gross sales during that same timeframe.
- Calculating food cost percentage is not always straightforward, but it can be done with the following formula:
What is the food cost percentage?
A food cost percentage is the value of a restaurant’s total revenue, expressed as a fraction. This helps restaurants set prices for their menu.
What is a good food cost percentage?
Running a profitable restaurant is tricky because many different factors come into play. For example, if the type of food served has higher-than-average costs or the overhead and operating expenses are high, it would be more challenging to maintain an ideal percentage for food cost.
I know that every restaurant has a different situation, but for the most pa, rt it is believed that if you want to sell more food, your menu prices should be higher. One way of doing this would be calculating what percentage of total sales are from food items and adjusting accordingly.
How to calculate food cost percentage
You need to know the following information to calculate food cost percentage:
- Beginning inventory value: the dollar amount of money you spent on purchasing new items.
- Purchases: the dollar value of your inventory at any given time you will need to purchase throughout the week.
- Ending inventory is the dollar value of all merchandise left at the end of a week.
- You can find your total food sales in the weekly reports that you receive.
Food cost percentage formula
To calculate your food cost percentage, first, add the value of what you started with and all that you purchased to determine how much inventory was used. Subtract this from total sales for a number multiplied by 100%. Divide it into hundredths.
Food cost percentage explained
Let’s say Johnny’s Burger Bar wants to know how much their food cost percentage is, and they use these values:
- When I first started the business, inventory was worth $11,000.
- Purchases = $7,000
- The ending inventory value was $15,000.
- Total food sales = $8,000
The food cost percentage is calculated by taking fixed and variable costs, then subtracting that from the gross profit.
In the previous month, 18,000 of inventory was sold and 15,000 worth of food. The percentage that went to cost is then calculated by dividing the total amount spent on food (18) with all sales minus expenses from last month 8).
The cost of food is around 33%
The cost of food is 37.5%
Johnny’s Burger Bar has a food cost percentage of 37.5%, which is higher than the industry average for burger joints, so he wonders if he should adjust his menu prices.
To bToneeds to calculate his ideal food cost percentage and compare it with the actual.
How to calculate ideal food cost percentage
To calculate your food cost percentage, you need to know two things: the total sales and the amount of money spent on ingredients.
- Total food costs
- Total food sales
Let’s say their total food costs were $2,500, and we s, ee that they sold a combined amount of $8,000 worth. The ideal percentage is found by dividing the price into sales: ($25008000)
The company’s average food cost is $2,500. This means that the ideal food cost would be about $250 per 8,000 of sales volume.
Ideal food cost = 0.31, or 31%
Knowing that their current food cost percentage is 37.5%, it’s clear that Johnny could be making 6.5% more revenue if he could bring his costs down by the same amount.
Johnny has a few options to lower his food cost percentage: -Ordering from suppliers with more favorable prices, -Increasing the amount of product sold per customer visit, andor *Decreasing quality.
- Find cheaper vendors
- Reduce portion sizes
- Adjust menu prices
Johnny decides to raise his prices.
How to set menu prices
The food cost percentage of Johnny’s Burger Bar is 37.5% which makes its current menu price $11.70 per burger, but he needs to lower his costs by 8%.
To find out, we’ll use this formula:
A menu item’s price is 4.40, and it takes 31 cents to make that dish.
Menu item price = $14.20
According to their calculation, the Johnny Burger should cost $14.20 and not $12.70 – that’s a real dollar difference!
While it might not seem like a lot at first, Johnny missed out on $2.50 per burger each day. Suppose he sells 75 burgers annually, which turns into over 65k in additional revenue annually. Imagine if Johnny optimized the food cost percentages for his other menu items.
Johnny realizes that his burgers are too cheap and change the price to $14.20, but he is surprised by what happens next.
How to track menu pricing’s effect on sales
RSuccessful restaurants track their menu prices and sales to make adjustments when food costs fluctuate.
Johnny was not happy with the food cost for his Johnny Burger, so he decided to raise its price. There are two possible outcomes of this decision: it could result in increased sales or decreased sales.
Scenario 1: Burger sales slow down
When the price of Johnny Burgers increased, sales have decreased.
If Johnny wants to increase sales of his burger, he could reduce the price. One way is by looking for cheaper vendors or finding ways to make it with less expensive ingredients.
Scenario 2: Burgers sell like crazy!
The success of the Johnny Burger could be because customers can afford a higher price.
To make the Johnny Burger more expensive without pricing out customers, he could increase the food cost percentage to 28%, which would price a burger at $15.70.
When adjusting prices, make sure you monitor how these changes impact sales. Ideally, the menu price is affordable for customers and has a manageable food cost – if not, don’t adjust your pricing too much, or else this will affect customer loyalty. When done correctly, sales should cover restaurant expenses while leaving some leftover money in the bank.
Three ways to lower restaurant food costs
Increasing menu prices can lead to fewer people eating at your restaurant if this is the cahen you want to decrease the ofoodcost percentage by reducing food costs per serving.
- Can you find a vendor that offers the same quality ingredients for less?
- To cut costs, Johnny could reduce the size of his burgers by serving 6-ounce rather than 8-ounce patties.
- Don’t be tempted to lower your food quality with cheaper ingredients. You’ll end up losing customers, which will hurt you in the long run.
Takeaways for managing food cost percentage
One of the most important aspects to being a successful restaurant owner is controlling your food cost percentages. With low-profit margins, every cent counts, and if you’re not careful with the,m, then it’s difficult for your business to pay its bills or turn a profit on each sale.
The menu items must be priced correctly for a restaurant to succeed financially. Click To Tweet
when pricing your food, several factors need to be considered you pay for I, ingredients, and how much of those costs can be passed on as profit. One factor which cannot necessarily impact price but should not go unnoticed is the number of servings in each dish.
- Determine the cost of food for each menu item.
- Determining the right food correctpercentage is a balancing act.
- To control food cost, you should alter the menu to match your desired percentage.
- Monitor how salespeople react to changes in the commission structure.
- Explore other options to reduce food costs.
Once you decide on menu prices, it can excellgoodidgood t your menus and reconsider hopositionioning each dish. Believe it or not, the way that a menu is designed has been proven to have an impact on sales.