Calculating your Food Cost Percentage – Part 1
If you are opening a restaurant (or any Food and Beverage outlet where food is for sale), you will always incur costs for the production of the food. How you work out what price to sell the food for will help to determine if your restaurant is profitable or not. It’s not a figure you can make up as you go along and requires a simple formula to ensure that you make money on your menu at the end of each month. Our Online Campus offers the very best course to follow for those who wish to follow a career in Planning and Control for Food and Beverage Operations.
What is a food cost percentage?
You can determine your FOOD COST as the percentage of the total of your restaurant sales that are spent on food products. This percentage should come in around 28-35% for your restaurant to start making money or show a profit. Remember though that food cost alone doesn’t determine your profitability each month. When you add staff salaries, water, lights, electricity and other overheads you need to run your business; you quickly realise that you must have your food cost come in below 35% to prevent loss of revenue.
How do you work out your food cost?
To work out your food cost percentage, you use the following formula:
Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Now, take this same formula above and apply it to your entire food operation to work out your actual food cost percentage for your restaurant (i.e. taking into account the cost of the menu items, your purchases and sales for the period)
- Take a physical count of the stock you have in your kitchen. e.g. Your opening stock is worth R50 000
- Add your new stock purchases: If you already have stock in the kitchen, and you also bought additional stock during the week, you should add the two together by combining the closing stock for last week with the purchases for this week. e.g. new purchases were R10 000 so total would be R60 000
- Subtract your ending inventory, after all, sales for the period, are complete. e.g. Closing stock value was R30 000 after stock take for the period. (R60 000 – R30 000 = R30 000 stock used for the period)
- Sales for the period was R100 000 (you take this figure from your POS system report)
- Divide the stock figure of R30 000 by your sales figure of R100 000 for the period to get your food cost percentage of 30%. That means you spent 0.30 cents for every rand in sales or 30% cost of food.
Factors that can influence your food cost percentage:
Incorrect opening stock takes and/or closing stock take or stock transfers. Accurate stock takes cannot be done while items are being sold or delivered; so complete stock takes either at the end of the day or the beginning of the day.
Incorrect purchases can affect portion control and cost. Also, if the cost of something has changed (for example you have two beef fillets that were bought at two different prices), use the most recent unit price.
The incorrect meal portioning – remember that some food shrink after it’s been cooked. Remember also to include small ingredients such as spices in your portion costings.
Your measuring scales could be out – check and service them regularly.
Wasting food /spoilage/ullage means money walks straight out the door. Store your foods appropriately. Its operations #101
Not ringing up sales or ringing up sales incorrectly can often be connected with fraud or lack of cashier training.
Short deliveries or stock returns, theft of stock and sales prices that are simply too low all affect your food cost at the end of the day. Be vigilant!
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