For restaurants, food costs are an essential component similar to bookkeeping records that will help you make 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.
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 clearly know which recipe components are profitable and which are not. They also must determine whether the combined effect of each element 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%. You must look at your weekly inventory by following the steps below to find your percentage.
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 item. Suppose a carton of milk: sum up the price you paid for all milk cartons, and do this for all items. Finally, sum 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 note 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
Food Cost Percentage = Food Cost Ratio x 100
TIP: If your food cost comes out too low or high, you must ensure you’ve valued the inventory correctly, put the correct 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 your restaurant’s ideal food cost percentage.
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
Ideal Food Cost Percentage = Recipe Food Costs ÷ Total Sales
The Importance of Food Cost
Restaurant owners usually don’t consider the ideal and actual food cost percentage values. This is probably because these figures don’t directly affect their bank account. However, restaurant owners should realize that optimizing the value 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 must care for 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.
Conclusion
In conclusion, understanding and managing food costs is vital for restaurant success. Restaurant owners can optimize profits and ensure long-term sustainability by implementing proper inventory tracking and calculating food cost percentages. Paying attention to actual and ideal food costs can make a significant difference, even for large food chains, preventing potential losses and maximizing revenue.
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