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When evaluating food costing apps, it’s important to understand the formulas and methods for analyzing food costs and to choose a robust, comprehensive system. In this page, we will explore how to calculate food costs, different methods to count and analyze food costs, the benefits of a food costing app, and an overview of MarketMan as your complete food costing solution.
For a restaurant to succeed, it’s essential to know what your expenses are. Food costs fluctuate more than any other costs, so it’s important to track your food spend and know which menu items and ingredients are cutting into your margins.
A food cost management platform will allow you to proactively make changes to maintain consistent profitability. You can analyze which menu items are profitable, allowing you to sell them more and optimize your menu. And when certain ingredients become too costly, you can adjust prices with your suppliers, replace the ingredients, or eliminate whole menu items.
The success of a restaurant is measured by its profitability. If you don’t maintain a consistent grip on your food costs, certain high expenses can make your business go underwater.
Whether you're embarking on launching your first restaurant, opening a second (or third) location, or ready to turn your restaurant business into a franchise, this guide will help you make the smartest decisions possible for your businessDownload E-book
A key way to analyze your food costs is to look at your total Food Cost Percentage. The Food Cost Percentage is calculated by dividing your Cost of Goods Sold by the Total Sales for a specific time period (for our example, we will use a monthly period. You can also calculate this weekly or daily).
To find out your COGS, count inventory at the beginning of the month, add your purchases of every ingredient, equipment, or tool you’ve made in the month, and subtract your ending inventory value.
COGS= Beginning Inventory + Purchases – Ending Inventory
The COGS tells you the cost of everything that you used for the month, or your total expendable costs. This is how much you spent on your inventory.
Next, divide this number by the sales made for that month, and multiply that by 100 to get your Food Cost Percentage.
Food Cost Percentage = COGS/Total Sales x 100
This figure gives you your total food costs, the dollar value of all the inventory that you used, as a percentage of your revenue. It is the portion of your sales spent on ingredients and food supplies. The higher this amount, the more your costs. A typical Food Cost Percentage is 30% for full-service and quick service restaurants, although industry averages can vary greatly based on your concept and operations.
The Food Cost Percentage and COGS are big-picture formulas that don’t tell you where your money is going. You can look further into your Food Cost Percentage by breaking down the percentage by categories of food (for example, meat, dairy, and drinks), or examining the profitability of individual menu items.
To see how profitable or costly certain menu items are, you can use recipe costing, or plate costing. The Food Cost per Dish/Portion/Item is the cost of ingredients per dish, portion, or item divided by what you charge to the customer for that dish, portion, or item.
Recipe Cost (or Food Cost Per Dish/Portion/Item) = (Ingredient Cost* for a Dish or Portion or Item)/ Revenue for this Dish or Portion or Item
The higher this number, the less profitable and more costly a menu item is.
*It is important to note that COGS is different from total ingredient costs. Recipe costing takes into account your ingredient costs instead of your COGS, which is an aggregate number used in the total Food Cost Percentage for your restaurant. COGS is always going to be higher than your total ingredient costs, as it takes into account other expenses. If the difference between COGS and total ingredient costs is high, then you should examine what’s causing the problem.
On the flip side, after you know your ingredient costs, a way to analyze your overall profitability is to use your menu profitability formula:
Menu Profitability = Net revenue- Total Ingredient Costs
It can also be expressed as a percentage:
Menu Profitability Percentage = (Net Revenue- Total Ingredient Costs)/ Net Revenue
You can also measure profitability per menu item:
Menu Profitability Per Menu Item = (Sales per Item- Ingredient Costs per Item)/ Sales Per Item
Menu profitability measures how profitable each menu item is, or the overall profitability of all the food in your restaurant. The higher the number or percentage, the more profitable you are.
There are many different methods restaurants use to calculate and analyze food costs.
While you can use pen and paper and excel sheets, this process is cumbersome and prone to human error. You will end up spending multiple hours each week tinkering with numbers and your data will be quickly outdated.
You can also use accounting software such as QuickBooks. This software focuses on overall expenses and revenue. However, you do not receive the precision of usage numbers because QuickBooks doesn’t track usage. It is also not as real-time as a focused food costing application.
Finally, you can use a food costing application like Marketman. This saves you time by automating the entire food costing process. You can also track usage numbers and examine data granularly by ingredient level.
There are many more benefits of investing in a food costing application:
MarketMan is the industry’s comprehensive tool for food costing, making the process quick, easy, and seamless. MarketMan allows you to speed up and automate your food costing process, control your food costs, and ultimately run your business successfully.
MarketMan helps you manage your costs by controlling your inventory. The software allows you to keep a consistent inventory count by syncing with your POS and automatically deducting ingredients from your inventory every time a sale is made. This allows you to know your usage and sales at any point in time, giving you insight into your overall Food Cost Percentage.
MarketMan streamlines the inventory counting process. You can take inventory counts on mobile devices, which is easier to use than pen and paper and provides accessibility. Multiple users can take inventory counts at the same time, and your on-hand levels are updated throughout the entire system.
On a side note, the system will even alert you when your on-hand levels are below par level, allowing you to place new orders immediately. You can be proactive about managing your inventory so you don’t run out of the ingredients necessary to make your sales.
You can also easily track waste and theft, reducing shrinkage. This reduces unforeseen costs.
When you monitor the usage of your inventory through MarketMan, you can find inefficiencies and make corrections so that you reduce food costs and maximize profits. You can also know your inventory quantity and value in real-time, enabling good habits and processes.
Marketman provides recipe costing and management. It gives you a complete cost breakdown for each dish on your menu, allowing you to develop recipes that work with your budget.
You can check recipe costs in real-time, identify costly ingredients, receive notifications when menu items become unprofitable, and integrate price tracking. Earlier in this page, we discussed how to calculate and analyze plate costs— MarketMan automates this process for you by calculating the food cost per dish and alerting you when prices of ingredients go above a certain threshold.
With MarketMan, you have a top-to-bottom understanding of what your plate costs are and can determine how to reduce food costs. You can be much more proactive about managing your margins and keeping food costs in line with your targets.
You can calculate and itemize plate costs that drive actionable results, receive valuable insights that provide visibility, and determine menu pricing to reduce waste and food costs.
Marketman allows you to perform vendor management by tracking purchasing and prices. You can proactively track periodical spend with each of your vendors by location and by item to ensure every price change doesn’t go undetected. You can get granular and track spend on each item, and set food cost levels so your menu items remain profitable.
This provides you visibility and accountability to your ingredient and food prices and helps you manage your relationship with your vendors.
Finally, Marketman has robust reporting capabilities to drill down to your food costs, developing actionable insights and driving smarter business decisions.
The Menu Profitability Report is a snapshot of your menu’s performance in a certain period of time that you set. It’s a recipe and food cost report that showcases margins and profits, menu item by menu item. You can also see your recipe ingredient costs for each menu item, as individual or aggregate numbers, or a percentage.
You can compare your food costs for each menu item side-by-side and pinpoint areas of opportunity. For example, you can sell more items with lower food costs. With the menu profitability report, you can easily analyze your food costs at a glance and make necessary changes.
The COGS and Gross Profits Report takes purchasing, counts, and sales data to tell you what COGS and gross profits are, solely based on purchasing and sales on aggregate and counts.
You can also break down your revenue and COGS by different revenue centers within your restaurant (for example, kitchen and bar). The revenue tells you the sales generated and COGS tells you the costs of ingredients and food supplies. You can see what categories or items of costs (for example, dairy, produce, pasta, etc.) are causing your numbers to be high.
This gives you a high-level picture of the efficiency and usage of inventory within the business. You can also find out which parts of your restaurant are driving more costs or sales, and act accordingly.
The COGS and Gross Profit report gives you key insights that helps you reduce food costs and drive profits.
With the Price Report and Price Change Report, you can analyze changes in prices by suppliers. The Price Report enables you to track individual items and see the fluctuation of price over time. And in the Price Change Report, you can compare suppliers side by side and see where prices have changed for different periods, giving you a good sense of which suppliers are the most reliable and cost-effective. You can then manage your suppliers accordingly.
The Actual vs. Theoretical (Variance Report) is a comparison summary showcasing discrepancies between theoretical usage and actual usage. In this report, you can find the difference between your theoretical and actual costs, and see what is causing the difference.
By comparing your sales information against your inventory counts for a certain time period, you can see whether there’s any type of product misappropriation that’s not going to its intended purpose—to serve customers. For example, you can find out whether you have a waste, over-portioning, or theft issue.
And along with a waste report within MarketMan, you can analyze your logged waste events and reasons, see what’s causing high variance levels, and reduce waste in the future.
MarketMan’s reporting capabilities provide food costing insights, analytics tools, and total visibility over all aspects of your business.
All in all, Marketman is the ideal choice for you to manage your food costs and save money. It contains all the features needed in a food costing app and more. You’ll be able to proactively gage your spending levels to ensure that your business remains profitable and successful this year and beyond.
Talk to a restaurant expert today and learn how MarketMan can help your business