How To Calculate Food Cost

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This is arguably one of the most difficult times ever to run a food and beverage operation. Rising costs, difficult labor markets, ever changing customer dietary needs and a noisy marketplace makes it hard to stand out, let alone develop a thriving business. It’s only after you’ve buttoned up the fundamentals that you can hope to build a successful operation, and if you neglect the process of building a solid foundation you’ll surely hemorrhage money and be out of business in no time. 

Before you can talk about service in a restaurant, the financials have to make sense, and there’s no better place to start than costing your menu. Menu development is both and art and a science. Finding the perfect balance of cost / retail price point and sellable items takes time, a lot of thoughtfulness and talking to customers.

How to Calculate Food Cost 

We measure food cost as a percentage:

Item (Menu) Cost / Revenue = Food Cost % 

So, if you make $12 on a burger and it costs you $6 to make it your food cost is 50% ($6/$12 = .5 = 50%) 

When costing a specific menu item, you’ll need to start with the recipe and breakdown the cost per ingredient. So, if there is a teaspoon of pepper in the dish – find your pepper container, and divide the cost of that container in to the number of teaspoons in the container. The same goes for everything that is needed to make the dish, including cooking oil. Do this for all ingredients in the dish, add them up and you’ll get your menu item cost. Once you’ve done this for all dishes on your menu, add them up and you’ve got you total menu cost.

You’re not necessarily looking for a specific number here as some of the most successful restaurants have food costs in the 45-50% range, and while that’s high, they're profitable because those menu items contribute high profit to the bottom line.

Hard to Find Costing Mistakes

Attention to detail in the costing phase can help drive as much to the bottom line as possible but there are some practices that you can employ to ensure you’re not making mistakes that may not be easily detected. 

  1. Food Preparation

Accuracy and adherence recipes is key. If you cost out a 6oz steak but the kitchen is serving 7oz steaks, your food cost just jumped up. The same goes for waste. If you’re expecting a certain yield from a purchase but the kitchen isn’t precise in their preparation, you’ll see higher waste and therefore a higher cost. If you’re not closely watching this, your expenses will skyrocket and you’ll be left trying to make it up in places that could hurt your business.

      2. Buying in Bulk

Many Chef’s and restaurant owners tend to buy ingredients in bulk, but this isn’t necessarily the right decision for cost containment. For perishable items, there can be a lot of left over from buying in bulk and if you’re in a hurry to use food before it goes bad, you’ll give larger portions to your customers, increasing your costs. It’s far better to produce a weekly forecast and buy items based on expected business volumes. 

Updating Menu Items

Menus are intended to be updated whether buy season or by sales volume. When reviewing sales volume, your menu items will fall in to one of four categories:

  • Stars are high profit items that sell very well. Push these items as much as possible.

  • Puzzles are high profit items that don't sell as often as stars. Try to figure out how to market these dishes more effectively.

  • Plow horses are low-cost items but they don’t sell that well and in turn don't make much of a profit. It’s ok to have a few items like this but too many will affect sales volume.

  • Dogs are low profit AND low sales. Sell whatever you have left and take them off your menu entirely.

Try to move as many items in to the Star category as possible. Dogs are the low hanging fruit here. Remove or amend them to cut costs and increase sales. Puzzles could be thought of as a “yes… but”. They’re items that customers are buying but there could be something that is preventing the item from selling at a higher volume. This is an opportunity for you to talk to your customers and understand what they would like to see changed.

Updating Menu Cost

An important aspect of costing to keep in mind is that most food items fluctuate in cost, sometimes dramatically, depending on the time of year. This means that your menu cost today will be different tomorrow if the price of beef goes up. Be prepared to alter proteins or seasonal vegetables when their cost goes up. If you stick to a rigid menu, you’ll be leaving money on the table.

In the end, you have to put together the menu your customers want, not the menu the chef or owner wants. Yes, you can and should stay true to your style and concept but if your menu is loaded with items that don’t sell or that carry a cost that is too high, what’s the point?

Not sure how to put this in to action? Contact us and let's come up with a plan that will take your operation to the next level.