Running a restaurant is no walk in the park. If you’re in the industry, you’ll already know how crucial it is to keep track of your expenses (especially in these days of inflation).
One of the important numbers that you need to watch - yet many restaurants still fail to do so accurately - is your food cost percentage.
This little metric offers a window into how much you’re spending on ingredients compared to how much you’re making from selling your dishes. It’s the heartbeat of your restaurant’s profitability, and keeping it in check can make all the difference between thriving and just getting by.
Worried you’re not keeping your food cost percentage in check? Don’t panic. That’s exactly why we’ve created this handy article. We’ll show you exactly what food cost percentage is, why it’s so important, and how you can calculate and improve it without pulling your hair out.
What is Food Cost Percentage Then?
Let’s keep it simple. Food cost percentage is the ratio of how much you’re spending on ingredients to how much revenue you’re bringing in from food sales.
Think of it this way… every dollar a customer spends on your food, a portion of that goes toward the ingredients. The food cost percentage tells you what that portion is.
For most restaurants, a healthy food cost percentage falls between 25% and 35%. Where you land depends on your cuisine, pricing strategy, and even your location. But the golden rule is this - the lower your percentage (without sacrificing quality), the better.
Why You Should Care About Food Cost Percentage
If you’ve ever wondered where your profits are disappearing, food cost percentage might just hold the answer. Here’s why it’s a game-changer:
- Keeps Profits in Check: If your food costs are eating up too much of your revenue, you’re leaving money on the table.
- Spots Inefficiencies: High food costs can signal issues like waste, theft, or over-generous portioning.
- Helps Set Smart Prices: Knowing your costs ensures you’re pricing your dishes for profit, not just popularity.
- Empowers Decisions: From menu tweaks to supplier negotiations, understanding your food cost percentage gives you the power to make better choices.
Let’s Cut to the Chase… How to Calculate Your Food Cost Percentage
Don’t worry - it’s not as complicated as it sounds. You just need a few numbers and a simple formula:
Food Cost Percentage = (Cost of Goods Sold ÷ Total Food Sales) x 100
Not sure exactly how this calculation works or what it means? Let’s break it down step by step:
- Find Your Cost of Goods Sold (COGS)
COGS is the total cost of all the ingredients you’ve used during a specific time frame, like a week or month. To figure this out:
- Start with your inventory value at the beginning of the period.
- Add the cost of any new ingredients you bought.
- Subtract the value of your ending inventory.
For example:
- Starting Inventory: $6,000
- Purchases: $3,000
- Ending Inventory: $5,000
COGS = 6,000 + 3,000 − 5,000 = 4,000
- Add Up Your Food Sales
This is your total revenue from food sales during the same period. Let’s say it’s $16,000.
- Do the Math
Now, plug those numbers into the formula:
Food Cost Percentage = (4,000 ÷ 16,000) × 100 = 25%
In this example, 25% of your revenue goes toward food costs. Not bad!
Common Mistakes to Avoid When Calculating Food Cost Percentage
Look, it all sounds easy enough to calculate, right? Well, even seasoned pros slip up sometimes when it comes to inventory management. It’s only natural, numbers probably aren’t the reason you got into this game in the first place, but they are the reason why you’re profitable.
Here are a few traps to steer clear of when calculating your numbers:
- Forgetting the Little Stuff: Spices, garnishes, and cooking oils might seem small, but they add up fast.
- Skipping Regular Checks: Food costs can change monthly, or even weekly. Keep tabs on them.
- Ignoring Shrinkage: Spoilage, theft, and overcooking are real. Make sure you’re accounting for those losses in your inventory management strategy.
Now That We Know How To Calculate Food Cost Percentage, How Do We Improve it?
Once you’ve run your calculations, what happens if your food cost percentage is a little higher than you’d like? Let’s say you own a cozy Italian bistro. You notice your food cost percentage has climbed to 38%, and profits are shrinking.
After a bit of digging, you discover:
- Staff are over-portioning pasta.
- You’re tossing out perfectly good vegetable scraps.
- Your supplier raised prices without notice.
By training your team, repurposing scraps for soups, and switching suppliers, you get your food cost percentage down to 32%. That’s a big win - and it translates to thousands of dollars saved each month.
That’s just an example, but the reality is there are plenty of methods you can use to bring your food cost percentage down. Here’s a look at some of the key methods:
- Keep Portions in Check: Ever notice how portion sizes can creep up over time? Make sure your staff is sticking to portion standards. Use tools like scales, scoops, and ladles to keep things consistent.
- Cut Down on Waste: Restaurant waste is a sneaky profit-killer. Track what’s being thrown out and why. Are you over-ordering? Are ingredients spoiling? Maybe you can repurpose scraps - think soups or stocks.
- Negotiate with Suppliers: Suppliers aren’t set in stone. Shop around, negotiate bulk discounts, or explore seasonal ingredients to keep costs in check.
- Audit Your Menu: Take a hard look at your menu. Which dishes have the best margins? Which ones are just breaking even? Focus on promoting the profitable ones and consider dropping the duds.
- Use Tech: Inventory management software can save you time and headaches. Many systems even sync with your POS to give you accurate data on what’s selling and what’s sitting.
- Tweak Prices Strategically: If food costs are consistently high, it might be time to bump up your menu prices. Be strategic - small increases in best-sellers can make a big difference without scaring off customers.
So, there you have it. Your restaurant’s food cost percentage is one of the best tools you have for staying profitable and competitive. By calculating it regularly and taking steps to optimize it, you’ll not only boost your bottom line but also gain a deeper understanding of your business.
Not sure where to start? The Sculpture Hospitality team of inventory experts would love to help. Reach out to us today and we can help your restaurant become profitable.
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