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For restaurants, food costs are an essential component similar to bookkeeping records that will help you in making financial decisions for your restaurant. Restaurant owners usually do not calculate this metric for individual menu items because, for many, it is a time and energy consuming process. In order to calculate base food costs and keep track of wastage, you need an inventory management system that has been optimized for restaurants.

A restaurant owner must have a clear idea of which recipe components are profitable and which are not.  They also must determine whether the combined effect of each component results in a profit, ensuring that their business is on the right track.

Talking numbers, on average, high end restaurants have a food cost percentage of 35%. Meanwhile, quick service restaurants usually maintain an average food cost percentage of 25%. In order to find your percentage, you need to look at your weekly inventory  following the steps below.

Step 1: Make a List of the Food Supplies you have at the Beginning of the Week

Your inventory software may support the feature of being used on tablets, allowing you to check the inventory at the beginning of the week.

Step 2: Valuate the Inventory for Each Item

Calculate or note the price of each individual item. Suppose a carton of milk: sum up the price you paid for all cartons of milk, do this for all items. Finally summing them up to mark the total value of your inventory. You’ll need these values in your calculations later on.

Step 3: Keep Track of Purchases made During the Week

If you made any purchases after that, you should take note of them.

Step 4: Valuate the Inventory Again at the Beginning of the Next Week

Follow the same valuation process you followed in step 2.

Step 5: Sum up the Sales you made Per Shift

Your restaurant POS system will be able to help you get this value automatically.

Step 6: Calculate the Weekly Food Costs using the Following Formula

Food Cost Ratio = (Opening Inventory + Purchases – Closing Inventory) ÷ Food Sales

Then

Food Cost Percentage = Food Cost Ratio x 100

TIP: If your food cost comes out too low or high, you need to make sure whether you’ve valued the inventory correctly, put the right values into the formula, and sum up each sale and purchase invoice.

The Ideal Food Cost Percentage for Your Restaurant

Calculating your food costs once doesn’t mean your work is done. You will need something to compare your food costs with and therefore you will need to calculate the ideal food cost percentage for your restaurant.

The ideal food cost percentage is also called the recipe food cost. It doesn’t take into account any wastage or theft. You can calculate it using the following formula

Recipe Food Cost = Sum of Costs of Ingredients x Weekly Sales

Then

Ideal Food Cost Percentage = Recipe Food Costs ÷ Total Sales

The Importance of Food Cost

Restaurant owners usually don’t pay much attention to the ideal and actual food cost percentage values. This is probably because these figures don’t have a direct effect on their bank account. One thing that restaurant owners should, however, realize is that optimizing the actual value, in order to make it closer to the ideal value, can help your business maximize profits and succeed.

Successful food businesses understand the importance of food costs and make it a part of their decisions related to wastage and theft. Big food chains have to take care of actual and ideal food costs as tiny differences can become massive on a bigger scale. Suppose a multi-national food chain sells 50 million meals a day. An offset of a small value, suppose 5 cents, can lead to losses of about $2.5 million in a single day.

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