How to Calculate Food Cost Percentage | Monthly Food Cost | Plate Cost | Examples

what is food cost ?

Food cost is one of the major expenses in running a restaurant, so it’s essential to have a clear understanding of how to calculate it accurately.

Food cost is a percentage of sales that shows how much money we make or lose on the food we sell.

To calculate actual food cost, follow this equation:

(Beginning Inventory + Purchases – Ending Inventory) / Food Sales = Food Cost Percentage

Introduction

Food cost percentage is crucial for the success of any restaurant or bar because it directly affects profitability. A profitable restaurant typically has a food cost between 28-35%. When you add labor costs, these expenses can take up to 75% of total sales.

High food costs can hurt your business. If you stop tracking inventory, your food cost will go up. Smart operators check their food inventory weekly on the same day to catch and fix problems quickly.

Many chefs think they have a good food cost, but often they don’t know their actual numbers. To know your actual numbers, you need to know:

How much inventory you have on hand
How much you purchased
How much you sold

With rising food costs and customers spending less, restaurant and bar operators must ensure their menus are profitable. Thousands of independent restaurants fail each year because they do not manage food costs wisely.

Why is food cost important?

Food costs are very important for all restaurants and bars. I am telling you why we should follow him. If you follow them, you will be able to manage your restaurant in a very good way.

Knowing your food cost helps you set menu prices that cover your expenses and make a profit. When you understand how much you’re spending on ingredients, you can price your dishes to ensure you’re not losing money.

For example: if a dish costs $5 to make and you want a 30% food cost, you would price it around $16.67. This way, you cover the $5 cost and make a profit. Without knowing your food cost, you might set prices too low and lose money or too high and lose customers. By accurately calculating your food cost, you can balance pricing to attract customers and keep your business profitable.

You can estimate how much you’ll spend on food in the future by looking at past data and expected sales.

For example : if you know how much you spent on food last month and how many meals you sold, you can use that information to predict next month’s spending. If you expect to sell more meals next month, you’ll likely need to buy more ingredients. Conversely, if you expect sales to drop, you can plan to spend less on food.

By analysing past spending and sales trends, you can make informed decisions about your future food budget, helping you manage costs better and avoid overspending.

Analysing food costs helps you find which menu items make the most selling and least profit. With this information, you can promote dishes that bring in the most money and consider changing or removing dishes that don’t make enough profit.

For example: if you see that a particular dish costs little to make but sells well at a higher price, you should promote it more. On the other hand, if a dish costs a lot to make and doesn’t sell well, you might need to change the recipe to lower the cost or remove it from the menu.

This way, you can focus on items that boost your profits and improve your overall menu.

Understanding food costs helps you spot where food is being wasted and take steps to control it.

For example: if you notice that a lot of ingredients are being thrown away, you can investigate why. Maybe portions are too big, or food is spoiling before it gets used. By identifying these problems, you can make changes like adjusting portion sizes, improving storage methods, or training staff to reduce waste.

This not only saves money but also ensures you get the most out of your ingredients. Reducing food waste helps keep costs down and makes your restaurant more efficient and profitable.

When employees know that food costs are being monitored, they’re more likely to be careful with ingredients, follow recipes correctly, and reduce waste.

For example: regular monitoring might reveal that certain ingredients are often overused or that too much food is being prepared and then discarded. By addressing these issues, you can improve your operations. This consistent attention to detail helps keep your costs under control, supports a more efficient workplace, and contributes to the long-term success and sustainability of your business.

Calculating Food Cost Percentage

So the first major point I want to bring up when we’re talking about food cost is the difference between food cost and plate cost.

This gets confused a lot. Food cost is the cost of the food that you use or that you purchase in a specific period of time across your entire restaurant. Plate cost is just the cost to produce one specific plate.

The difference between food cost and plate cost because this can get a little confusing as we move forward here. To calculate your food costs, simply divide the amount you spend on food in a period by the amount of food sold in that same period. So, here’s the formula. Purchases divided by sales equals food cost, then just multiply that food cost by 100 to get a percentage.

Plate Cost (Food Item Cost)

Plate cost is the expense of the raw materials needed to prepare a single menu item. It represents how much it costs to make one dish using all the ingredients required. This calculation helps restaurant owners and managers understand the cost of producing each item on their menu, which is essential for setting appropriate prices and ensuring profitability.

To calculate the plate cost, you first need to add up the total cost of all the ingredients used in the dish.

For example:

if you’re making a pizza, you would include the costs of the dough, sauce, cheese, toppings, and any other ingredients. Once you have the total cost of the ingredients, you divide this amount by the selling price of the menu item.

Here’s a step-by-step example:

Calculate the total cost of ingredients for one pizza:
- Dough: $1.00
- Sauce: $0.50
- Cheese: $1.50
- Toppings: $2.00
- Total ingredient cost: $5.00
Determine the selling price of the pizza:
- Selling price: $15.00
Divide the total cost of ingredients by the selling price to get the plate cost:
- Plate cost = Total ingredient cost / Selling price
- Plate cost = $5.00 / $15.00 = 0.33 or 33%

This means that 33% of the selling price of the pizza goes toward covering the cost of the ingredients. The remaining 67% can be used to cover other expenses, such as labor, rent, utilities, and profit.

Another Example: If it costs 5 rupees to make a burger and you sell it for 20 rupees, then the food cost percentage is: (5/20)×100=25%

So, the food cost percentage for this burger is 25%.

Knowing the plate cost is crucial for setting menu prices that ensure you cover your costs and make a profit. It also helps in identifying which menu items are more profitable and which might need adjustments, either by changing the recipe to reduce costs or by adjusting the selling price. This information is key to maintaining a profitable and sustainable restaurant business.

What is food cost formula ?

Food Cost Percentage=(Cost of Item / Selling Price)*100

Period Cost (Monthly Food Cost)

Calculating the food cost for every single menu item can be a time-consuming and complex task. To make this process easier, many restaurants choose to calculate their food costs on a regular schedule instead of doing it continuously. Typically, they do this once a week or once a month.

When a restaurant calculates food costs periodically, they look at the total amount they spent on food over the past week or month. They then compare this to the total sales for that same period. By doing this, they can see how much of their revenue is being spent on food. This helps them understand if they are staying within their budget or if they need to make adjustments.

For example:

a restaurant might spend $10,000 on food in one month and make $40,000 in sales. By calculating these figures, they can determine their food cost percentage, which in this case would be 25%. This means that 25% of their sales revenue goes towards buying food.

Doing this on a weekly or monthly basis allows restaurants to keep track of their spending without getting bogged down in the details of every single item. It also makes it easier to spot trends and patterns in their costs.

If they notice that their food costs are increasing, they can take action to address the issue. This might involve negotiating better prices with suppliers, reducing portion sizes, or adjusting menu prices.

In summary, calculating food costs periodically is a practical approach for restaurants. It simplifies the process and provides valuable insights into their spending and profitability, helping them make informed decisions to manage their business effectively.

Here’s a step-by-step example for calculating monthly food cost:

Example for March:

Opening Inventory: Check the inventory on the first of March. Let’s suppose you have material worth 50,000 rupees.
Purchases: Check all purchases made in the entire month. Let’s suppose you made purchases worth 25,000 rupees.
Closing Inventory: Check the inventory on the last day of March. Let’s suppose the closing inventory is 40,000 rupees.

Calculate Cost of Goods sold:

Cost of Goods sold = (Opening Inventory + Purchases) − Closing Inventory

Cost of Goods sold = {Opening Inventory} + {Purchases} – {Closing Inventory}

Cost of Goods sold =50,000+25,000−40,000=35,000 rupees

Calculate Monthly Food Cost Percentage: Assume March sales total 100,000 rupees

Food Cost Percentage = (cost of Goods sold / total sale of month ) x 100 = ? .

Food Cost Percentage = (35,000/100,000)×100=35%

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Food Cost Control Strategies

Effective food cost control strategies can significantly improve your restaurant’s profitability. Here are some key strategies:

Inventory Management:

Regular audits and using the FIFO (First In, First Out) method help reduce waste in a restaurant :-

Regular audits mean checking the inventory often to see what ingredients and supplies you have. By doing this, you can keep track of what is being used, what is running low, and what might be going bad. This helps ensure that you only order what you need and avoid overstocking, which can lead to spoilage and waste.

The FIFO method is a way of organizing inventory so that the oldest items are used first. When new supplies come in, they are placed behind the older ones. This way, the older items get used up before they have a chance to go bad. For example, if you have a delivery of fresh vegetables, you would put the new vegetables behind the ones already in storage. This ensures that the older vegetables are used in cooking first, reducing the chances of them spoiling.

Together, regular audits and the FIFO method help keep the inventory fresh and minimize waste. By using these practices, restaurants can save money and reduce the amount of food that gets thrown away.

Supplier Management:

Negotiating better prices and finding alternative suppliers are two strategies restaurants use to save money on their ingredients and supplies.

When a restaurant negotiates better prices, it means they talk to their current suppliers to try and get a lower price for the items they regularly buy.

This could involve discussing discounts for buying in bulk, asking for special deals, or simply requesting a better rate. By doing this, restaurants can reduce their costs, which helps increase their profits.

Finding alternative suppliers means looking for other companies or sources that can provide the same ingredients or supplies, possibly at a lower cost or higher quality.

Sometimes, a different supplier might offer the same products at a cheaper price, or they might have better terms, such as faster delivery or more flexible payment options. By comparing different suppliers, a restaurant can choose the one that offers the best overall deal.

Both negotiating prices and sourcing alternative suppliers are important for managing costs effectively. These strategies help ensure that the restaurant is not overspending on their supplies, allowing them to maintain better control over their budget. This can lead to lower overall expenses and potentially higher profits, making the business more successful.

Menu Engineering:

Analysing and optimizing menu items and adjusting according to seasonal ingredient availability are key strategies for improving a restaurant’s efficiency and profitability.

Analysing and optimizing menu items means looking closely at each dish to see which ones are popular and profitable and which ones are not. This involves checking sales data to identify the best-selling items and the ones that aren’t doing well. Based on this analysis, the restaurant can make changes to the menu, such as removing less popular items, promoting best-sellers, or tweaking recipes to reduce costs and improve appeal.

Adjusting the menu according to seasonal ingredient availability means changing the menu based on what ingredients are in season. Seasonal ingredients are usually fresher, tastier, and cheaper because they are more readily available.

For example: a restaurant might feature strawberries in desserts during the summer when strawberries are in season and present in great quantity. This not only enhances the quality of the dishes but also helps control costs since seasonal ingredients are often less expensive

Reducing Waste:

Portion control means serving the right amount of food for each dish. This involves measuring ingredients carefully and using standardized recipes to ensure consistency. By controlling portions, restaurants can avoid waste and ensure customers receive the same quantity and quality each time they order a dish.

For example : if a recipe calls for 200 grams of chicken per serving, the kitchen staff measures exactly that amount each time. This helps in managing food costs and providing a consistent dining experience.

Proper storage techniques involve keeping ingredients in the right conditions to maintain their freshness and prevent spoilage. This includes storing food at the correct temperature, using airtight containers, and organizing the storage area so that older items are used first (FIFO method). For instance, dairy products should be kept in a refrigerator, while dry goods should be stored in a cool, dry place. Proper storage reduces waste by ensuring ingredients stay fresh longer and are used before they expire.

Together, portion control and proper storage techniques help a restaurant save money by reducing waste and ensuring ingredients are used efficiently. This leads to better food quality, lower costs, and a more profitable operation.

Staff Training and Involvement:

Educating staff on cost-saving practices means teaching them how to perform their tasks in ways that save money. This can include training on portion control, proper storage techniques, and efficient use of ingredients.

For example: kitchen staff might learn how to measure ingredients accurately to avoid waste, while servers could be trained to suggest menu items that use ingredients currently in abundance.

Offering incentives for implementing these practices means rewarding employees for following the cost-saving methods they’ve been taught.

Incentives can be in the form of bonuses, gift cards, extra time off, or other rewards. For instance, if the kitchen staff successfully reduces food waste by a certain percentage, they might receive a bonus. This encourages employees to take the training seriously and apply what they’ve learned in their daily work.

Together, educating staff and offering incentives create a culture of cost-awareness and responsibility. Employees become more engaged in their roles and motivated to help the restaurant save money.

What is Ideal Food Cost Percentage ?

The ideal food cost percentage varies depending on the type of restaurant, location, and other factors. Generally, a food cost percentage between 25% and 35% is considered good.