How to Calculate Your Average Cost of Food Per Month
A 's determines its profitability and can be one of the greatest weapons against profit loss and strongest tools to stay within your . Knowing your 's aids in menu pricing and affects prime costs, too. Every penny counts -- 52% of professionals named high and operating costs as a top challenge.
But manually controlling costs can be a tedious, time-consuming process that restaurateurs should complete monthly to ensure costs accurately show changing market rates.
The good news is that managing your doesn't have to be overly complex. As long as you understand the calculations required and the controls that need to be implemented, you'll be well on your way to running a profitable .
In this article, you will learn:
- The definition of
- How to calculate average costs
- How to calculate the of your menu items
- How to maximize profitability and stay within your
What Is ?
is the ratio of your inventory ( of ingredients) and the revenue that those ingredients produce when each is sold ( sales). is usually expressed as percentage.
What is percentage?
percentage is the value of costs to revenue indicated as a percentage. The number helps restaurants set prices for menu items.
What's a good percentage?
Many need to keep costs between 28% and 35% of revenue to be profitable. However, an ideal doesn't exist. Rather, it depends on the type of , what kind of they serve, and their on operating and overhead expenses.
Restaurants should calculate their percentage and not commit to catch-all averages, but generally, the higher your total are, the higher your menu prices should be.
How to Calculate Average Costs
Monitoring average costs will help you decide when to adjust prices, reconsider on more expensive ingredients, buy different items or quantities, or change vendors or suppliers. Let's break down how to calculate average costs in order to control your .
How to Calculate Actual Average Costs Per
Most of the information you'll need should be readily available. First, you need an accurate count of your inventory. These figures consider your start-of- and end-of- inventory counts and each item's associated costs.
Next, you need a list of the purchases made during the that has not been recorded within your inventory system. And finally, you need to know your total sales, which can oftentimes be extracted directly from your POS system. Now that you have the required information, it's time for a bit of simple math to determine your monthly .
Let's say at the beginning of the , Noel's inventory was worth $30,000. He purchased $8,000 worth of products (not recorded in his inventory system), and his end-of- inventory was $32,000. That Noel's sales amounted to $20,000. Noel's actual for the was 30%.
- Start of inventory = $30,000
- Monthly = $8,000
- End of inventory = $32,000
- Monthly sales = $20,000
We can use this to figure out our monthly percentage:
($30,000 + $8,000 - $32,000) / $20,000) = .3
Monthly percentage = 30%
Since the average percentage ranges between 28% and 32%, you may think this figure is good to go. What about the that your kitchen staff didn't use to prepare meals; items lost due to spoilage or waste, or even theft? To get an accurate reading of what it actually costs to prepare your dishes, you need to dig a bit deeper.
How to Calculate Ideal Costs
After calculating your monthly average costs, compare it to your ideal costs. Ideal costs can display any disparities between your percentage and your actual . Unlike actual costs, ideal costs don't consider the beginning and ending inventories; instead, they look at total costs and sales.
Ideal Percentage = Total Per Dish / Total Sales Per Dish
For example, if your total per dish is $2,000 and total sales per dish is $7,000. Your ideal percentage would be 28%.
($2,000 / 7,000) = .28 or 28%
So, if we compare the ideal percentage and the actual percentage, we can see a 2% difference (30% - 28%). The percentage difference could be from various factors, such as over-ordering, waste, theft, etc. Now we're empowered with the knowledge to investigate further and take further steps to reduce costs and .
How to Maximize Profitability
You menu pricing, , and ingredients are crucial to maintaining percentages that boost your bottom line. A few ways to keep these figures at optimal levels are:
- Keep close tabs on your menu pricing. Even minor pricing tweaks can have positive results.
- Promote your most profitable menu items and strategically place them within your menu.
- Modify your menu frequently to take advantage of lower-, in-season produce.
- Be meticulous about with your back-of-house staff to minimize waste.
- Be sure you're getting the best deals possible from your distributors to maintain your . Compare vendors and purchase bulk when appropriate to reduce .
While other figures affect your profitability, such as labor costs , rent, non- purchases, utilities, etc., tracking your average monthly will enable you to make adjustments to optimize your 's profitability proactively and stay within your .