How to Calculate Food Cost: Food Cost Formula (In-Depth)
How to manage a restaurant is a big question. But consider a more specific question, how to calculate the food cost and food cost percentage? Do you know 52% of restaurant owners confront a big challenge while calculating food cost? Well, here you will get the best solution. The food cost calculator and food cost formula will help you prevent your costs from getting out of control.
One of the most common rationales for failing the restaurant business is improper controlling of costs. In this case, lack of accurate inventory management affects significantly. This article explores the purpose of calculating food costs. And you will get an ultimate guideline on how you can improve your food cost percentage.
What Is Food Cost?
Food cost indicates the ratio of ingredients’ cost and the revenue generated from the sales by using those ingredients. It is an insight into a restaurant’s profitability. Food cost is denoted by percentage.
Food cost calculation helps the restaurant to set the price of a prepared dish. On the other hand, COGS (Cost of Goods Sold) assists in measuring inventory value to prepare a dish.
Why Is Food Cost Prime?
Maximizing your ROI is interconnected with accurate food cost calculation. Do you want to price your items correctly? Maintaining the food cost ratio will assist you in this case.
Food cost maintenance allows you to track your cost and adjust the pricing. You must be aware of your business’s actual cost, as knowing your substantial cost percentage helps you calculate your food cost percentage.
You have to stay on top of cost as staying on top is imperative. In the restaurant business sector, profit margins are thin. In this regard, you ought to minimize your inventory shrinkage. Inventory management software is the best way to utilize your stock perfectly.
What Is The Difference Between Actual Food Cost & Ideal Food Cost?
The actual cost is always a greater percentage than the ideal cost. Then how is it? Let me explain.
Ideal food cost doesn’t consider the inventory losses when the actual cost does. Suppose a restaurant owner requires an amount of money to run the business, especially the restaurant cost. It is the real cost, but what is the actual cost?
The actual cost is the real cost that indicates the genuine inventory levels. For instance, as a restaurant owner, you face inventory losses. But it doesn’t affect the real cost.
The ideal cost is the target cost of your business, but it isn’t an accurate measure. It helps to reduce your wastage and prevent losses. If your ideal cost and the actual cost is closer, your business’s profit will be greater.
Food Cost Formula
The actual food cost formula excludes the depleted inventory.
Food Cost= (Initiating Inventory+ Purchases- Final Inventory) / Food Sales
Steps that are crucial to calculating the food cost include determining the inventory, finding sales, and using the cost formula.
Step I: Dictate inventory usage
You need to calculate your inventory usage. It means how many products your restaurant uses over a certain time. In this case, the below formula helps you.
Inventory Usage= Initiating Inventory+Purchases - Final Inventory
The initiating inventory indicates the beginning inventory that you have prior to starting. It counts from the first day of the month. And the final inventory means the remaining on the last day of the month.
Step II: Find Total Sales
The POS system helps the restaurant owner to find out the total sales easily. The best restaurant billing system records all your essential data. But if you don’t have a POS system, you have to calculate the sales manually.
In this case, you can use the below formula.
Total Sales= Total Plates x Price per Plate
This formula helps you to find out the total sales of every product. So calculate it individually for every single product and then do a sum.
Step III: Apply Food Cost Formula
Now you have two values that you have already seen in the above steps. Finally, you are going to find out the food cost.
%Food Cost= Inventory Usage / Food Sales x 100
Your final food cost indicates the average amount you require to make your dish.
Want to learn: How to Sell Food Online
Food cost percentage is also known as food cost. It helps the restaurant manager or owner to determine that the customers are charged correctly.
Food cost percentage is the measurement of COGS against sales. The food cost percentage formula is:
Food Cost Percentage= ( Initial Inventory + Purchases - Final Inventory) / Food Sales
What Is The Average Restaurant Food Cost?
Well, it is not a fixed number. The food cost of a restaurant can vary depending on its meal. But it should be between 28% and 35%.
One thing you must think of that you can determine the food cost correctly. First, you have to calculate your prime cost. Prime cost indicates the total costs of products sold and labor cost. Prime cost percentage is the ratio of COGS and total sales.
The prime cost percentage must be below 60%. If your cost exceeds the limit, you should adjust your ingredient costs or portion sizes. Most restaurant owners can’t make a profit because the portions are so large. In this case, staying on the top is a must.
Do you want to cut your food cost? Well, you can, but in this case, you should compare your ideal and actual food costs. How does it help you? It assists you in detecting food waste problems, and you can easily cut food costs.
Now, five steps that can help you to reduce your costs will be explored. Besides, you can improve your bottom line indeed.
Some restaurant owners increase the price of the items while facing losses. They think the price increase can prevent the loss. But you must consider the customers’ complaints.
If your price increment is more significant, the complaints will be more. On the other hand, if the increased price is smaller, the customers are less likely to complain. Besides, some ingredients cost are higher. In this case, you need a higher sales price.
Wasting food negatively affects the environment. Besides, reducing food waste helps the restaurant to cut the food cost.
Suppose a customer doesn’t finish the provided dish. In this case, a large portion of food returns to the kitchen. But all returned foods are wasted. Besides, you can follow a marketing strategy on food. It isn’t working, actually. So instead of doing these, you can cut your food costs.
The season affects the restaurant business. The price and availability of food ingredients vary from season to season.
Suppose your suppliers provide you the required and adequate ingredients timely. You should consider the seasonal food because some elements are affordable when the season is congenial.
When you can provide the food at a reasonable price to the customers, your customer’s satisfaction will increase. It helps you to maximize your ROI.
Setting up the menu is a crucial task for the restaurant. When you offer the dish to the customers, they always look for the specialty compared to others.
It can be costly, but menu engineering can help you maintain the cost by providing quality ingredients. Suppose your ingredients price is high. In this regard, you can’t provide the desired food at an affordable price.
The skilled and experienced restaurant owners sometimes update the menu based on different situations. It grows the customer satisfaction level and the sales of the restaurant.
According to USDA, food costs will grow by 2 to 3% in 2021. Are you worried about that?
Don’t panic. It’s just a way, a strategic way that is imperative to follow.
Suppose you purchase the ingredients from the right place at the right time. In this case, you will get the desired food elements at a reasonable price. Both time and location are important factors in this case.
Minimizing the food cost for the restaurant is essential to offer the required food to the customers. When you can cut your food cost, you can provide the dish at a low price.
Moreover, balancing between price and quantity can optimize the food cost and food waste.
Check Out: Top Restaurant Software
Restaurant owners confront some challenges while calculating food costs. But those problems can be overcome easily by following some required steps. Food cost calculator plays an inevitable role.
While managing the restaurant food cost, the below mistakes of restaurant managers are common.
- The restaurant owners don’t differentiate the actual cost and ideal cost. In this case, they can’t identify the dispute between them. So the profit of the restaurant isn’t calculated properly. They think they earn a profit, but actually, the yield is not as much as they assume.
- Most of the time, the inventory management is not accurate and proper. In this regard, the restaurant managers don’t know the exact stock report. It is an apparent reason that’s why the food waste increases.
- The purchasing time record is a must while calculating the inventory. But the restaurant owners make a common mistake when conducting this operation.
- Besides, the manual calculation is complicated, and the probability of doing a wrong calculation is an ordinary matter. In this regard, you must check the math and formula frequently to ensure accurate calculation. The restaurant balance sheet should be used in this case and stay on top of the balance sheet always.
The food costing calculator helps you to find out your exact food cost percentage of your dish. Besides, you will be able to reduce your waste and cut your additional cost.
Inventory management plays an essential role in this case. When you will adopt an automation system that helps you monitor and record all your inventory data. How will it be?
Well, at present, 45% of restaurant owners integrate the restaurant automation system by which they can manage the order, purchase, supplier, customers, employees, accounts, and especially inventory.
The advanced and digital restaurant management system is a business solution as it offers you a complete package. It eases your billing system and helps you to record accurate data.
Are you in a dilemma? You don’t require any technical knowledge to operate the system. It is easy to use and user friendly.
Now it is high time to choose the best restaurant management system. But Stop!
At first, you need to identify your requirements based on your restaurant type or size. The budget is also a considerable thing while adopting an efficient Inventory management system.
The food cost calculator is a modern and updated business solution that helps you identify your real cost and your business’s actual cost. And the food cost formula assists you in calculating the food cost calculation process accurately.
Moreover, maintaining the food cost percentage assures your ROI and customer retention because you can cut your food cost by utilizing your inventory properly.
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