How to Calculate Your Food Cost
Having the knowledge of how much your food costs you to sell is critical to running a successful operation. Your food cost percentage should be utilized as a preemptive tool to warn you of potential theft, waste, and inefficiencies. Knowledge of your food cost empowers you to stay in command of your restaurant operation and ultimately control your profits and loss. Let’s examine how to properly calculate food cost so you have the tools to run your restaurant operation efficiently.
To calculate food costs, first you have to ask yourself the following questions:
• What is my starting inventory for the period I am analyzing? • What is my ending inventory for the period I am analyzing? • How much inventory was purchased during the period I am analyzing?
To answers these questions, you simply have to start by taking an inventory count. Establish one inventory count as the starting point and one as the ending period (the ending inventory count would also serve as the starting inventory for the next period). Make sure to track any additional purchases made during this period as it is a factor in the food cost equation. By counting your inventory, you will able to compute a dollar amount of your inventory on-hand.
My recommendation is to perform an inventory count every week and to analyze your food cost every week.
Calculating Actual Food Cost
Here is the equation to calculating your actual food cost:
This equation only gives you the actual cost of food for your restaurant operation. You will need to find out your ideal food cost then compare the figure to your actual food cost to derive informative statistics to get an understanding of your restaurant’s economic situation.
Computing Ideal Food Costs
Ideal food costs is the theoretical cost of food—the amount of money the food you sold should have costed you. To calculate your ideal food costs, use the following equations:
In a quintessential world, ideal food cost equates to actual food cost. Unfortunately, this is not how the real world operates and it is nearly impossible to achieve equilibrium. Your actual food cost and ideal food cost will always be different from each other. This difference is known as your variance. A significant variance indicates there are problems arising from your restaurant operation. This could include a variety of things such as poor staff training, poor prep procedures, theft, inconsistent portion control, etc. To run an efficient restaurant operation, your objective is to achieve a low variance. You will have to dive into your business to figure out why there is variance. The two figure only gives you a mathematical figure, it is up to you to do the work to help solve it.
The All-Important Food Cost Percentage
Food cost percentage is what your food costs you to serve in relation to your sales figures. Follow the equations below to help you compute you food cost percentage:
The calculated figures give you the percentage of your sales that contributes to paying for the food that you sell in your restaurant. These percentages gives you the amount of the sales that is set aside for food cost alone.
A high food cost percentage indicates your operation is not being as profitable as it should be with the way your menu is price. Develop a strategy to lower your food cost percentage because that is money being taken from your pockets.