As a restaurant owner, it’s important to know your food cost percentage (FCP). Why? We’ll break it down in this post, but first, what is it? For example, if you have a brownie on your menu that costs you $1.00 to make and you sell it at $4.25, your food cost percentage for that item is 24%.
Your FOOD COST PERCENTAGE is your cost of goods sold (the amount of money you’ve spent on ingredients and inventory in a given time period) divided by your sales.
Now that you know exactly what it is let’s dive into why it’s important. It’s nice to know if individual items are profitable or not but you also need to know if your entire business is on the road to success. By keeping an eye on your restaurant’s food cost, you are able to track mistakes in the kitchen and be able to maximize your potential earnings. It will give you the power to construct a better menu, promote the right items (the ones that have the highest profit margins), and intelligently experiment with other menu items. Calculating your Food Cost Percentage can be tricky, but we’ve lined out how you can calculate yours below.
HOW TO FIND YOUR RESTAURANT’S FCP:
Start with your weekly inventory. It’s easiest to start at the beginning of the week so you can track your very first order.
- Start a list of all the food items you received.
- Add together how much each item costs.
- Track each order. If you order more than once per week, you’ll want to track those purchases as well.
- Take inventory at the beginning of the next week.
- Add together total food sales per shift.
- Calculate food cost for the week using this formula:
(Beginning Inventory + Purchases — Ending Inventory) ÷ Food Sales = Food Cost Percentage
IDEAL FOOD COST VS. ACTUAL FOOD COST
Unfortunately, we don’t live in a perfect world which means there will be theft and food waste. Actual food cost takes into account the beginning and ending inventory levels and will always be a higher percentage than the ideal food cost. Because of this, you need something to compare it to Ideal Food Cost.
To calculate your Ideal Food Cost, use this formula:
Recipe cost ÷ Recipe Sales Price = Ideal Food Cost Percentage
Recipe Sales Price & Ideal Food Cost Percentage
Without knowing what your Ideal Food Cost Percentage, you won’t be able to analyze what’s happening behind the scenes or be able to see where exactly it is you could improve. Let’s stick with the Thai Chili Chicken Wings example.
At the beginning of the week you have:
Sales of chicken wings for the week comes to $210. Therefore, your Food Sales for this item would be $210.
Midweek you get another order with:
At the end of the week you take inventory again and end up with:
Now, we apply those numbers to our Food Cost Percentage Formula and we get:
Beginning Inventory ($82) + Purchases ($47) — Ending Inventory ($70) = $59
$59/ Food Sales ($210) = 28% Food Cost Percentage
28% food cost is pretty good, but since we calculated our Ideal Food Cost before, we know that we were actually aiming for 21% in a perfect world. That means we lost 7% somewhere. Now we can break that down and see what happened.
If we started with 14 cases of wings, added 7 midweek, and ended up with 12, that means we used 9 cases (14+7–12=9). The cost of 9 cases ends up at $45 (9*$5=$45). Since we sold 10 plates according to our sales ($210), we should have only gone through 8 cases of wings, not 9. Our actual cost of wings was $45, but our ideal cost was $40.
Let’s do the same for the sauce. We started with 6 bottles of sauce, added 6 more midweek, and ended with 5, which means we used 7 (6+6–5=7). The cost of 7 bottles is $14 (7*$2=$14). Since we sold 10 plates, we should have only gone through 2.5 bottles of sauce, not 7. Our actual cost of bottles used was $14 but it should have been $5 in a perfect world.
Uh, oh! Something happened to our sauce! Either you’re handing out too many extra sides of sauce or someone is throwing out the bottles. Whatever the case, now you’re aware of it and can start investigating it.
OPTIMIZING YOUR FOOD COST
There are many ways you can optimize your food cost.
- Introduce small, incremental price increases instead of cutting portion sizes to make up for the food cost. For example, start the price of the wings out at $21. Then, increase wings to $22 three months later, and again to $23 in the next few months.
- Use carbs on your menu for side choices. Items like potatoes and pasta are usually cheaper to buy in bulk.
- Engineer your menu to include highly profitable menu items.
- Promote items with the most profitability.
- Keep an eye on your portion sizes. If the majority of the plates are coming back with half-eaten food, it might be time to adjust the portion size. Reduce your waste.
- Adapt your menu through the seasons. Certain items are cheaper during a specific season of the year. Try changing out your menu items to keep costs low.
- Utilize ingredients in multiple dishes to eliminate waste and allow you to buy in bulk for better pricing.
- Keep in mind the amount of time it takes to prep a certain item. If you order shrimp and need to deshell it, you’ll be spending more money in labor.
Your menu prices are going to be two-fold. They have to both be able to meet the needs of your bottom line but also, able to meet your target market’s needs and expectations. When you go to price your menu you need to start thinking about when and where to use your expensive items when to add new items, which items you should always keep, and your best and worst-case dining scenarios. If someone comes in and only orders a basket of bread, where does that put your food cost?
A great formula to use when pricing your menu is this:
Recipe Cost ÷ Target Food Cost Percentage= Menu Price ( round up or down)
We suggest you round so that you don’t have items that cost $12.63 and another at $13.91. When determining what to price a certain item at, keep in mind your local market. If the competitor down the road has an equally tasty Ribeye for $25, you likely won’t be able to price your Ribeye for $40 without turning away a few customers. Your menu is key to your success.
Food Cost Percentage is extremely important to know and will determine how profitable your restaurant can be. Get started keeping track of your food cost by using Eater Creative’s Food Cost Calculator! If you want to start really optimizing your restaurant’s menu, contact Eater Creative. We take your menu to the next level so you can start maximizing your earning potential!