How to Calculate Your Average Food Cost Per Month
A restaurant’s food cost determines its profitability and can be one of the greatest weapons against profit loss. Knowing your restaurant’s food costs aids in menu pricing and affects prime costs, too. Every penny counts—52% of restaurant professionals named high food and operating costs as a top challenge.
But manually controlling restaurant food 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 food costs doesn’t have to be overly complex. As long as you understand the calculations required and the food cost controls that need to be implemented, you’ll be well on your way to running a profitable restaurant.
In this article, you will learn:
- The definition of food cost
- How to calculate average food costs
- How to calculate the cost of your menu items
- How to maximize food cost profitability
What is Food Cost?
Food cost is the ratio of your food inventory (cost of ingredients) and the revenue that those ingredients produce when the restaurant’s menu items are sold (food sales). Food cost is usually expressed as food cost percentage.
What is food cost percentage?
Food cost percentage is the value of food costs to revenue indicated as a percentage. The number helps restaurants set prices for menu items.
What’s a good food cost percentage?
Many restauranteurs need to keep food costs between 28 and 35% of revenue to be profitable. However, an ideal food cost doesn’t exist—rather, it depends on the type of restaurant, what kind of food they serve, and the operating and overhead expenses.
Restaurants should calculate their food cost percentage and not commit to catch-all averages, but generally, the higher your total expenses are, the higher your menu prices should be.
How to Calculate Average Food Costs
Monitoring average food costs will help you decide when to adjust prices, buy different items or quantities, or change vendors or suppliers. Let’s break down how to calculate average food costs.
How to Calculate Actual Average Food Costs Per Month
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 month and end of month inventory counts and each item’s associated costs.
Next, you need a list of the purchases made during the month 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 food cost.
Let’s say at the beginning of the month, Noel’s inventory was worth $30,000. She purchased $8,000 worth of food products (not recorded in her inventory system), and her end-of-month inventory was $32,000. That month Noel’s food sales amounted to $20,000. Noel’s actual food cost for the month was 30%.
- Start of month inventory = $30,000
- Monthly purchases = $8,000
- End of month inventory = $32,000
- Monthly food sales = $20,000
We can use this formula to figure out our monthly food cost percentage:
(Start of month inventory + monthly purchases) — end of month inventory / monthly food sales
($30,000 + $8,000 – $32,000) / $20,000) = .3
Monthly food cost percentage = 30%
Since the average food cost percentage ranges between 28% – 32%, you may think this figure is good to go. What about the food 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 Food Costs
After calculating your monthly average food costs, compare it to your ideal food costs. Ideal food costs can display any disparities between your food cost percentage and your actual food cost. Unlike actual food costs, ideal food costs don’t consider the beginning and ending inventories; instead, they look at total costs and sales.
Ideal Food Cost Percentage = Total Cost Per Dish / Total Sales Per Dish
For example, if your total cost per dish is $2,000 and total sales per dish is $7,000. Your ideal food cost percentage would be 28%.
($2,000 / 7,000) = .28 or 28%
So, if we compare the ideal food cost percentage and the actual food cost percentage, we can see a 2% difference (30% - 28%). The percentage difference could be from various factors, such as over-ordering, food waste, theft, etc. Now we’re empowered with the knowledge to investigate further and take further steps to reduce costs.
How to Maximize Food Cost Profitability
Menu pricing and what you pay for food products and ingredients are crucial to maintaining food cost 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-cost, in-season produce.
- Be meticulous about portion sizing with your back-of-house staff to minimize waste.
- Be sure you’re getting the best deals possible from your distributors. Compare vendors and purchase bulk when appropriate.