Calculating how much the food you sell costs you to sell is a very important practice in running a profitable restaurant. Knowledge is power, and knowing your food cost compared to your sales and your ideal food cost is very empowering information. By figuring your food cost percentage, you have an early warning system to alert you to potential theft and waste.
Before we get into the process for calculating food cost, it’s good to talk about how often this should be done. I suggest calculating your food costs at the end of every week. If you happen to have a cost control issue, it’s best to know as close to the time the occurence happened as possible. The farther you get away from an occurence that caused a cost problem, the harder it is to determine what that occurence was.
You are going to need to track a few pieces of information to calculate your food costs. You will need to know:
- How much is my starting inventory for the period I am evaluating?
- How much is my ending inventory for the period I am evaluating?
- How much food did I purchase during that period?
This is all the information necessary to calculate actual food costs for any given period. How long that period is depends on you. As I said, I suggest evaluating food costs every week.
In addition to knowing your actual food costs, you’ll need a couple other pieces of information to compare the actual food cost to:
- What is your ideal food cost for the period being evaluated? (we’ll discuss how to calculate ideal food cost also)
- What are your total sales for the period being evaluated? (you’ll also need to track your sales by item to calculate your ideal food cost)
Now let’s go one step at a time to get these powerful pieces of information.
Calculating actual food costs
Calculating your actual food cost starts by taking an inventory of all your food items at the same time every week. Choose one time as the starting and ending time for all your reporting for that week. I suggest ending your reporting after the end of business on Sunday, but before the beginning of business on Monday. Inventory levels are usually at their lowest on Sunday, so inventory takes less time to count and calculate.
The inventory that you take every week will serve as the starting inventory for the week to follow, but also the ending inventory for the week that is concluding. It will be used in both capacities to calculate food costs depending on whether the calculations are for the past week or the coming week. By counting your inventory, and using a spreadsheet to multiply out the value of all your items on hand, you will come up with a dollar amount that shows you how many dollars in inventory you have on hand.
This starting inventory is the beginning to the food cost equation. The equation looks like this:
starting inventory + purchases – ending inventory = cost of food for period
By taking a physical count of all your food on hand, you’ll have the starting inventory and the ending inventory parts to this equation. From there, you simply have to track your purchases within that time period. For this number, you’ll use dollar amounts from invoices received in the period being evaluated. It does not matter to the equation when that food is actually paid for.
Start with an inventory you took on the Sunday before a week started. Add all the dollar amounts for food received during that week. Subtract the amount of your inventory counted on the following Sunday. The resulting number is the cost of goods sold, or food cost, for the week.
Calculating ideal food costs
Ideal food costs are the amount of money the food you sold during a given period should have cost you. Compare your ideal food cost to your actual food cost to help you identify when there is a breakdown in your system. If your actual food cost goes up for a period, your ideal food cost should go up too. If it doesn’t, then you’ve just identified a problem, possibly theft or waste. If your ideal food cost does rise with your actual food cost, then you know your food cost is high not because your staff did something wrong, but because of the sales mix of your menu items for the period. This is important to know, because most high food cost menu items also contribute more gross profit dollars to your bottom line, so a high food cost for that period is not be a bad thing. The only way to know whether it is bad or good, is to compare it to your ideal food cost.
Here are the equations to figure your ideal food cost:
recipe cost for menu item × number of item sold = ideal cost for item
ideal cost for all items added together = ideal food cost
In a perfect world, your ideal food cost should match your actual food cost exactly. Since it’s impossible to perfectly measure every piece or food, or track every piece of waste, you will see some variance between your actual and ideal food costs. You have to decide how large a variance is acceptible. I believe you should expect to keep your actual and ideal costs within .5% of each other. Variances larger than this tend to point to problems in your system. These problems could include theft, waste, under-portioning, over-portioning, poor prep procedures, bad food receiving procedures, or other problems.
What we haven’t covered yet is the “percentage” part of food costs. I’m sure you’ve noticed that other restaurateurs express their food costs in a percentage. I also suggested your ideal and actual food costs stay within .5% of each other.
Food cost percentages
A food cost percentage is an expression of what your food cost you to serve compared to the sales you made during the period you’re evaluating.
The simple formula for figuring this percentage is:
actual food cost ÷ total food sales = actual food cost percentage
ideal food cost ÷ total food sales = ideal food cost percentage
The resulting percentage is the percent of your sales that go to pay for the food you sold, whether it’s actual or ideal. These percentage make it easy for you to compare your actual and ideal costs to each other, but also make it easy to compare food costs from different weeks, months, quarters or years to each other.
I hope this explanation helped you learn how to calculate your food costs. Calculate them every week, along with your ideal costs, and you’ll find that the extra attention you are paying to your costs will open your eyes to many opportunities to save money in your restaurant or food service. If you need some tools to help you calculate your actual or ideal food costs, please visit the webstore on our website.
From our experience, you need to learn a bit of accounting in order to keep on top of your business.
How do I work out how much I should sell a menu item for instance fish of the day that cost me 26 dollars kilo
can you tell me if my food codt is over spending is alright?
opening stock 4986.17
food and beverage 5.131.82
closing stock 7.156.67
total cost5 of sales 2961.32??
gross margin 2.961.32
There isn’t enough information there to know if your food cost is high Giovanni. The only way to know if your cost is high is to know what it should be. For that, you need to know all your recipe costs and how many of each item you sold for a particular period.
Multiply your recipe costs x the items sold for each item, add the cost of selling each item together to get a total ideal food cost. This is what your food should have cost you to sell.
Once you know what your food should have cost you to sell, you can compare it to your actual food cost to see if there is a variance. If your actual costs are over your ideal costs, then your food cost is too high. If they are within 1.5% of each other, your food cost is not out of line, however, your prices may still be too low if your food costs are in line but you are not making money. Of course, there are many things in a restaurant that can make you lose money. For a good “rule of thumb”, add your food cost percentage and your labor cost percentage. It should be below 65% in most cases.
Our tough question is this: we’re are a BBQ restaurant and currently we calculate our chopped brisket food cost by 1. weigh a whole raw brisket 2. smoke the brisket 3. weigh the whole smoked brisket, then trim and weigh the whole brisket and we arrive at the sliced brisket food cost. After calculating the sliced brisket food cost we trim and chop the WHOLE trimmed brisket and calculate our chopped brisket food cost. We have decided that this isn’t a very accurate method because currently we chopped the entire brisket to arrive at the chopped price when in actuality our chopped brisket isn’t a whole chopped brisket but rather made up of brisket deemed not suitable for sale as sliced brisket and comes from numerous whole briskets. What do you suggest we do to arrive at a more accurate chopped brisket food cost?
It sounds like you are just using the “trimmings” from your existing brisket for your chopped brisket? In this case, there is no real cost of brisket for your chopped brisket if it is already calculated into the cost of your sliced brisket. What you are doing is not calculating the “food cost” per se, it’s calculating the “recipe cost”.
If you take a recipe sheet with all the ingredients needed to make a “batch” of smoked brisket (i.e. raw brisket, rub or marinade, etc), and add up the cost of all the ingredients in that batch, you only then have to calculate how many portions of sliced brisket is yielded from that batch to have a recipe cost for sliced brisket. Then, the trimmings that are left over will already have been costed into a recipe and will not have to be costed out again in your chopped brisket recipe.
so If an operator wanted 30% food costs, it would be, cost of recipe divided by 30% to get the sell price, correct?
Theoretically, yes, though there are a lot of other contributing factors into what your actual food cost will end up. You have to make sure your recipes are accurately calculated including a factor for waste, cooking oil, condiments, spices and seasoning, complimentary breads, butter, cream for coffee, etc, etc. If you don’t consider every factor of your cost of goods into your recipe, you won’t end up with the percent you budget. You also must be able to control your costs after you set your prices in order to achieve that budgeted cost. Here is an article I wrote about controlling costs: https://blog.bodellconsulting.com/2010/06/07/20-steps-to-lowering-your-food-or-liquor-costs/.
I don’t suggest to anyone to divide by a budgeted cost percentage to get their sales prices regardless. This method of pricing doesn’t do well to include every cost of doing business. If you are only considering your food cost when you set your price, you have no way of guaranteeing your labor cost, rent, and every other expense will be within your budget. You could end up underpricing, or worse, over-pricing for your market also. Here is an article I wrote on pricing food that gives you a more comprehensive method for pricing that can nearly “guarantee” profit while preventing you from overpricing: https://blog.bodellconsulting.com/2008/06/26/pricing-food-why-youre-doing-it-wrong-and-how-to-fix-it/.
Reblogged this on O'Dell Restaurant Consulting's Blog and commented:
Here is an article from 2008 I’m bringing back around because it is the most common asked question in the food service business.
I am afraid this was so wrong and I worry that people will follow the advice here and get themselves in trouble. very simple. If you sell a dish at £16.95 you then divide that by 1.2=14.125….so round up to 14.13. you then divide the cost of makng the dish eg £5 by that number…..£5 %14.13=0.35 so your GP is 100-.35=65%. Hope this helps.
Thanks for the input Steve. What you are demonstrating is how to calculate an ideal gross profit percentage for an individual item, although I’m not sure why you would be dividing the item by “1.2” in your calculation. You must have an unstated cost to consider. This is completely different than calculating your overall food cost as outlined in the article. We don’t find much use in calculating individual item gross profit percentages as percentages can’t be deposited in the bank. When pricing food, the most important number is the individual item’s gross profit dollar amount. Only by making sure you have enough dollar markup in each item can you ensure you are left with enough money to cover all the costs of doing business other than food costs.
I also wrote an article about pricing you are welcome to read if you like:
Thanks for this blog. Its definitely helped me a whole bunch me being a Sous Chef… Thanks again, good job.
What is the best way to control labor cost with the BOH???
The first step to controlling labor is always knowing where it is. Labor costs should be tracked daily and compared to sales. You should know what your labor dollars are as a percentage of sales, as well as knowing how much in sales you are doing per labor hour. The first measure your “labor value”, the second your “labor efficiency”. If you have goals and measurements in place, it will go a long way to getting your staff helping you to control your labor costs.
There are many other factors to consider, other than just motivating the staff, when examining labor costs. If you have a menu that is too big and burdensome, or a kitchen that is underequipped, your labor is going to be high. Your KM or chef must also have systems in place for everything from staff communication on ordering, to set prep lists, line setup diagrams, a recipe book with pictures, and more.
There are many factors that can affect labor costs. If you take care of your reporting procedures, and have a manageable menu, you’ll take care of most of them.
Food wastage monitoring is a great way to watch where your money is going when talking about food cost. It is not mentioned in this article, and I don’t mention it much in my article on restaurant cost of goods sold either, but it is something you will want to think about.
In one of the restaurants I managed, we would keep a bin out for any food related wast. When coring a pepper, trimming meat, or throwing away old food, we would add it to the bin instead of just throwing it in the garbage. At the end of the shift, I would calculate the cost of the wastage based on weights and our inventory list. It is tough to stay 100% accurate here, but we made a list of regular items we were wasting (homemade chicken tenders which portions would need to be thrown out at the end of night if any were left for example). It would give me insight on my teams performance as wells. If peppers were cored, I could see how much “good pepper” was being wasted if a cook was rushing things.
Regarding labor, I agree with Bodell. Forecasting was always big in terms of keeping labor down. Always look at your last years numbers for a forecast. Unless there was a special event, it will be fairly consistent with your sales for this year. For example, the one place I worked at was established, and sales tended to be around 8 to 10% more from the previous year. From there, I would be able to take the food sales for that forecast, multiply it by the percentage of labor I am looking to run, and get the dollar amount I have for my labor budget. You can divide that by your average wage to get the kitchen hours you have to play with.
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New Question, same topic. I understand how to calculate my food costs/percentages but what I’m stuggling with is truly understanding hoe much I’ve saved year over year. Lets say in year 1 my food sales were $100 and cost %50. Year 2 my food sales were $200 and cost $40. I know what the percentages are but how do I quantify on an even scale how much I actually saved?
I don’t understand what you mean by “saved”? There isn’t anything to be saved or not saved as far as food costs are concerned. Can you phrase the question another way so I might understand what you are asking?
Hi, thanks for replying. The contract that I have at work entitles me to 15% of whatever savings I can generate this year over last year. It’s difficult to calculate since food sales increase and the ratios are not even. I know it’s kind of confusing eh?
If food sales were the same both years ($100) and in year 1 food cost =50% and year 2=40% then the savings would be $10 or 10% which I would then receive 15% of.
Time to renegotiate for a different matrix to be bonused on. “Savings” is a totally ambiguous term. It could be calculated a number of different ways. You should never sign a contract that has terms in it that you don’t understand. It’s not your fault you don’t understand it, I can’t even answer the question because, but you shouldn’t agree to be compensated on a “moving” matrix like that. Not to mention, you aren’t going to be properly incentivized because it’s impossible to guage how well or poorly you are doing.
It’s really important for bonus systems to have very clear goals, and for those goals to be easy to measure. If they aren’t, employees aren’t going to be incentivized to achieve them.
I would go back and ask that you be bonused based on their increase in profit. Afterall, that is their goal. “Savings” by itself means nothing. Worse yet, what happens next year after you’ve already gotten the kitchen’s numbers inline and there aren’t any significant improvements to be made. There will be no savings if you are doing your job well as the increased profit margin will already be there at the beginning of the year.
Here’s how I understand the arrangement–using your example numbers–assuming that you meant to type 40% not $40.
1. Year 1 food cogs was 50%.
2. Take total sales of year 2 ($200) and see what your food cogs would be at the Year 1 rate. In this case, 50% of $200 is $100.
3. Take your actual Year 2 rate (40%) and find your actual food cogs, in this case $80 (what you truly spent year 2).
4. The difference between the 2 values in Year 2 is $20. You “saved” the company $20 by lowering your food cogs 10%.
5. Your bonus is 15% of monies saved every time you improve your food cogs. You are owed 15% of $20, or $3.
The problem for you (this is pretty good for ownership) with this arrangement is that while you may have the option for a significant early bonus, if I make the additional assumption that your structure refreshes yearly, you are doomed to see a significant bonus decrease year over year. If you are succeeding in lessening the food cogs, you will want additional incentives.
Where can I buy sea salt for a hand brine solution?.
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If we purchase high value product does it impact the restaurent food cost
Depends completely on what you sell it for. Your cost of goods would go up if it costs more, but if you can increase the price by more than you increase the cost, it’s a net “win”.