Why you need to calculate food cost for a recipe on a regular basisIf you are new to the industry, the food cost for a recipe is your cost to prepare a dish divided by the menu price and multiplied by 100. Once you have the number, you can compare it to industry standards or your historical data. It helps you hold down the cost of each dish on your menu. However, it is not the total cost of your food purchases. As an owner or manager, you have three major expenses: staff, food and your rent. Since food prices from your supplier can change, it’s the most likely expense area to have volatility in your budget. Calculating the food cost of your recipes is going to help you control your spending in this area. A good place to start is to know what it costs you in ingredients to create each of your menu items. If you don’t have this level of detail in your accounting, you are putting your chance to become more profitable at risk. It’s also important to keep track of food cost on a consistent basis — both individual recipes and your restaurant total as a whole. By doing so, you’ll always know your most profitable dishes and those that are not. Even owners who claim to know food costs are often incorrect. Often they will mistake the ideal food cost for the actual food cost. By focusing on the actual food cost, which we go into below, you’ll see how owners will be able to correct issues like possible theft, waste and spillage, or incorrect portion sizes. Easily keep tabs on the business by using software to generate accurate numbers.
How to calculate food cost for a recipe for an individual dishYou can calculate the food cost for each recipe on your menu. You can also calculate the food cost for the restaurant in total. To calculate the food cost per recipe for each dish, you divide your cost to prepare a dish by the menu price and then multiply by 100.
The formula: (Cost to prepare the dish/Menu price) x100 = Food CostSo if it costs you $5 to make your chicken parm dish, and it sells for $18 per serving on the menu, your food cost is:
($5/$18) x100 = 27.7%
How to calculate food cost for a restaurant totalTo calculate the food cost for the restaurant in total, also known as your periodic cost, here’s what you need to do. The first step is to calculate the cost of goods sold, also known as COGS in the restaurant business. You must have your:
- Beginning inventory at the start of the period you are reviewing.
- Your purchases made after the beginning inventory.
- Ending inventory at the end of the period.
- Total food sales for the period you are reviewing.
Beginning inventory + Purchases − Ending inventory = UsageThis gives you your “usage,” or how much food you used during the period. Step two for the formula is:
(Usage/Sales) x 100% = COGSOnce you have the COGS, you can calculate the food cost for the restaurant in total. One thing to remember is you need to ensure your purchases, inventory periods and sales are all from the same period. So if you were calculating your food cost for a month, here’s how that would work:
- Beginning Inventory: $5,000
- Food Purchases: $25,000
- Ending Inventory: $4,000
- Food Sales: $100,000
Food cost (Usage/Sales) = ($26,000/$100,000) x 100 % = 26%Your monthly food cost for your restaurant would be 26%.