Restaurant owners know they need to keep food costs under control. Determining how to calculate the food cost for a recipe is critical to eliminating guesswork. By not knowing your costs, there’s also the danger of having a false sense of profitability in your restaurant.
Though calculating the food cost for an individual recipe or restaurant total for a specific period involves many steps, it’s worth committing to a system that will help you do it on a regular basis. There are many ways to do it, including using restaurant inventory management software that makes the process much more straightforward.
When done correctly, it can help you plan your menu better.
Why you need to calculate food cost for a recipe on a regular basis
If 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 dish
You 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 Cost
So 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 total
To 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.
Step one for the formula for COGS is:
Beginning inventory + Purchases − Ending inventory = Usage
This gives you your “usage,” or how much food you used during the period.
Step two for the formula is:
(Usage/Sales) x 100% = COGS
Once 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
The usage for the month is $26,000.
Food cost (Usage/Sales) = ($26,000/$100,000) x 100 % = 26%
Your monthly food cost for your restaurant would be 26%.
How to use your food cost information to drive more profits
Each restaurant and situation is different, so your food cost for recipes or the entire restaurant over a period might be different from the industry norm. That said, industry standards say food costs should be no more than 28-32% for most restaurants. In general, you want your food costs to be no higher than this range.
However, your inventory and purchasing systems should be taken into account whenever you review your food cost. For example, if you make large purchases at the end of a calendar month, the sales won’t show up until the next month.
In general, though, a properly planned and executed menu could generate up to 10-15% more in profit every week. If your food costs are higher than the norm, you need look into areas like possible theft, waste and spillage, or incorrect portion sizes.
How to save time and simplify food cost calculations
Inventory control and menu management are two critical components of running a profitable restaurant. One way to make it easier to manage your inventory, purchasing and food cost is to use restaurant inventory management software like MarketMan. Not only will MarketMan calculate food and menu costs, it can auto-order ingredients based on par levels; quantify waste and calculate yields; and track margins, profitability and production price. You’ll get better control over your inventory and costs, and more profit from your restaurant.