When running a restaurant chain, sometimes there’s too much on your plate. Seriously, things can get overwhelming. Between making sure customers are satisfied, choosing the right menu, high turnover rates, and a pace that can really get out of control you need to make things as easy as possible. One factor that is integral is how to calculate food cost in a restaurant chain or franchise. We’ll show you a starter guide on what to do so that is one thing off of your mind and you can focus on other important matters. Calculating food costs may seem difficult but with some easy explanations, it doesn’t have to be.
What is Food Cost Calculation?
According to one expert, Blue Cart:
“Food Cost” is the ratio of the cost of ingredients (inventory) and the revenue that those ingredients generate when dishes are sold (food sales).
Food Cost is always presented as a percentage.
Here are some definitions to make it easier to understand.
This is pretty simple; it’s what it costs for the ingredients that go on each plate of food.
Ideal Food Cost
This is the cost of ingredients similar to recipe cost but it includes all plates of food as in the total cost.
Actual Food Cost
This is the ideal food cost minus the inventory that is lost
Recipe Sale Price
This one is easy; it is what your customer pays for a plate of food at your restaurant.
Ideal Food Cost Per Serving
This is the recipe cost/recipe sale price.
Actual Food Cost Per Serving
This is when you take your ideal food cost and subtract the inventory lost per serving.
Why is it Important?
In order to make sure your restaurant chain or franchise is profitable, you must have a visual of the food cost. It just takes a minor percentage to change your bottom line. Some claim it is as low as 3 to 5 percent! Food costs range around 20 percent and up to 35 percent so knowing that number allows you do to a few important things such as:
- Change products
- Change prices (decrease or increase)
- Change purchase quantities
How is it Calculated?
Here comes the easy part of calculating food cost. Really, it’s not that difficult at all. Simply put, it is the cost of goods sold (COGS) divided by your sales. See? That’s not so hard at all. Here’s how to get started.
Use Your Weekly Inventory
Starting with your weekly inventory is how you get the food cost. On average, most food cost percentages run between 28 and 32 percent.
List Your Supplies
If you have an inventory management system, this may be an easier task. Take all of the food supplies received at the start of the week and check them on this list.
Add Up the Value
Take the cost of each item and add it up. If you paid for a box of potatoes or a case of gourmet nut butter, you’d count those costs.
Keep Up With Additional Costs
Throughout the week, if you had additional purchases, make sure that you track them along with your list.
Do Inventory Again
At the start of the next week, take your inventory again. You will need to do this each and every week and if you have something like a shelf-to-sheet system, this is helpful. What you do is when taking inventory you look at what’s on the shelf and then find it on your Inventory Taking Sheets. This ensures that you do not miss things that were on the shelf. This has to be done for each restaurant in your franchise.
At each shift, the total food sales should be calculated for each restaurant. Many POS systems do this for you automatically, which saves time.
Add Up Actual Food Cost
Last but not least, add up the actual food cost for the week with this handy formula:
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Here is an example of how that works in real life situations.
Sally’s Single Smoothie chain has a single menu item. Yeah, we know – just bear with us here. That item is an almond butter smoothie. While this is not a very extensive menu, hence the name, it is easy to share the example this way. To make it simple, we are only using two ingredients – gourmet almond butter and milk.
Sallie’s almond butter cost is $1 and the milk is 50 cents. Sallie sells each smoothie for $5 a glass. Remember that the ideal food cost is equal to recipe cost divided by recipe sales price. In this case, the ideal food cost is $1.50. So now we take the $1.50 cost of ingredients and divide it by the $5 smoothie sales price. What you get is a 30 percent ideal food cost.
What About Calculating Actual Food Cost?
We’re going to use Sallie’s numbers since it’s easier.
- 14 cases of gourmet almond butter – $5/case = $70
- 6 cases of milk – $2 a gallon = $12
- Total Beginning Inventory = $82
The sales from smoothies for the week is $210, which is the food sales.
During the week, Sally buys seven cases of gourmet almond butter, which comes to $35. She also gets six cases of milk for $12. Now her purchases for this week equals $47.
Now she must take inventory at the end of the week and re-add the costs.
She had 12 cases of almond butter left at $60 and five cases of milk at $10. This gives her an ending inventory of $70.
Now we want her actual food cost. Actual Food Cost = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
The inventory at the beginning equaled $82 plus what she bought later which was $47 for a total of $59 since we had to take away her ending inventory.
We now take that number and divide her food sales and come up with the food cost percentage. So we take 59/210 = 28 percent.
While all of these calculations may seem difficult at first, they get easier as you keep doing them. And it is imperative to do this every week. After a while, this will become second nature and you’ll always have a better understanding of what you’re making, where you might be losing money, and which ingredients are the most cost effective. And while you’re buying for your restaurant, don’t forget the peanut butter.