Are you calculating your average food costs? If so, how often? And what are you including, or more importantly what aren’t you taking into consideration? To maximize your profitability, you need to calculate food cost on a monthly basis. Anything less is not enough.
Unlock your food cost
Are you of the school of thought that calculating food cost is a time-consuming endeavour? It doesn’t have to be. Most of the information you’ll need should be readily available.
First, you need an accurate count of your inventory. These figures take into consideration your start of month and end of month inventory counts and each item’s associated cost. Next you need a list of the purchases made during the month that have not been recorded within your inventory system. And finally, you need to know your total sales. If your POS system includes analytics, it may be able to automatically provide this information. 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. During the month 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
- Monthly food cost percentage = 30% ($30,000 + $8,000 – $32,000) / $20,000)
Since the average food cost percentage ranges between 28% – 32%, you may think this figure is good and you’re done. What about the food that wasn’t used to prepare meals? Items that were lost due to spoilage or waste, or even theft? To get an accurate reading of what it actually cost to prepare your dishes, you need to dig a bit deeper.
Know the cost of your dishes
Armed with your monthly food cost, you now need to know what the cost is to create your mouth-watering menu items. Recipe costing software takes the drudgery out of this all important task. With the ability to provide the cost of each of your recipes, as well as notify you of costly ingredients – you have the majority of what you need at your fingertips.
Let’s revisit our previous example to see how well Noel is doing when it comes to menu item food cost (or sometimes referred to as food cost per serving). To obtain your menu item food cost, you’ll need the total cost for each dish you made during the month and the sales for that month.
Let’s assume Noel’s per dish monthly cost was $5,000, and we already determined that her food sales for the month was $20,000. Noel’s cost per menu item for the month was 25% – ($5,000 / $20,000 = 0.25). Ideally, this figure should range between 25% – 35%, however the extra 5% found in the actual food cost indicates food shrinkage.
While these percentages are within set standards, the additional 5% should be investigated. For example, is inventory in line with usage? If not, it’s time to take a close look at quantities purchased vs. what is actually being used. Is kitchen staff wasting perfectly good food? Do items disappear from the shelves? Once the reason for the extra 5% is determined, appropriate steps can be taken to resolve the issue.
Let’s say your actual food cost aligns perfectly with your menu item food cost, and your restaurant is as near zero waste as possible – is there anything else that you should do? Yes, there are still ways to increase your profitability when it comes to food cost.
Maximize food cost profitability
Menu pricing and what you pay for food products and ingredients are key 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.
- Reduce portion sizes, especially if dishes are being returned to the kitchen with considerable amounts of food left behind.
- Be sure you’re getting the best deals possibly from your distributors. Compare vendors and purchase bulk when appropriate.
While there are other figures that affect your profitability such as labor costs, rent, non-food purchases, utilities, etc., tracking your average food cost on a monthly basis will enable you to proactively make adjustments to optimize your restaurant’s profitability.