There are 2 major costs associated with running a restaurant.
One is labor costs.
The other is food cost.
Interest in food cost and how to control it has been rising and rising. Looking at Google Trends for search term "food cost", it's clear that people are becoming more and more conscious of it's importance.
Understanding and controlling food cost is a critical skill for restaurant managers and chefs as it not only effects overall profits, it also determines how much budget is available for staffing and marketing.
The basic idea of calculating food cost, ie. the amount of money you spend on ingredients for any given recipe, is easy to understand.
But the nuances of food cost analysis can be quite complicated.
Using food cost to your advantage means having a good understanding of calculations like food cost percentage and net contribution margin. Mastering these more advanced food cost concepts enables restauranteurs to make decisions that truly effect their bottom line.
These causes include,
- Your menu doesn't evenly disperse high and low cost ingredient dishes.
- Employees are stealing.
- Not portion controlling dishes.
- Not making use of all your food.
- Improperly trained staff.
- Poor restaurant accounting.
- Sourcing your ingredients from only one vendor.
- Not routinely calculating food cost of each dish.
Typically, calculating food cost involves working out the cost of every ingredient that goes into a recipe and then calculating food cost percentage based on the selling price of the item.
For example here's a basic food cost calculation for a beef burger priced at $9. Food cost percentage refers to the percentage of the selling price that is made up of the cost of ingredients.
Or Total Food Cost / Selling Price = Food Cost Percentage
Most restaurants look to keep food cost at between 20-30%
|Cost of Ingredients:|
|Cost of Beef Patty||$1.03|
|Cost of Hamburger Buns||$0.20|
|Cost of Lettuce||$0.10|
|Cost of Tomatoes||$0.07|
|Cost of Ketchup||$0.02|
|Cost of Pickles||$0.10|
|Cost of Oil for Grilling||$0.05|
|Overhead Costs Per Hamburger (Labor, Electricity, Gas)||$0.50|
|Food Cost Percentage||23%|
Our easy to use food cost calculator for excel is the perfect starting place for managing food cost.
Once you have a firm grip on calculating food cost it's time to look at ways of reducing and optimizing the amount you spend on food. Take a look at quick ways you can cut food costs and increase profits before looking at more drastic and long term ways to reduce food costs.
Menu engineering is an increasingly important technique involving food cost, which is focused on uncovering and then promoting the most profitable and popular and menu items, (and removing or changing the worst performers).
Many people start with establishing a profitable menu pricing strategy. We encourage people to think of menu engineering as both an art an science with crunching numbers like food cost and net contribution margin and also understanding the role of psychology in designing your menu.
Putting a system of Excel menu engineering worksheets together is almost always helpful and key to creating a successful menu. Collecting POS and reservation system data is required in order to complete a menu engineering analysis. Likewise maintaining an efficient restaurant inventory and maintaining a sensitive item inventory will lay the groundwork for menu engineering success.