Managing food cost is the most critical aspect of owning a restaurant. Most restaurants bring in most (if not all) of their profit through food revenue, making the balance between ingredient purchasing and menu pricing an obviously important part of running one’s business. Among the numbers of restaurants that close their doors every year, almost all of them have been due to poor food cost management.
Unfortunately, there’s no getting around the fact that calculating your food cost is a long and time consuming part of managing your budget. But with a careful and organized approach, keeping your food costs in check is a readily achievable goal. While balancing your overall budget will be a complicated and intensive portion of your restaurant duties, calculating the food cost of each of the items on your menu can be broken down into several relatively simple steps.
First, take stock of each of the ingredients that you will need for the items on your menu. The easiest way to do this is to review your menu item by item and make thorough, quantifiably portioned lists of required ingredients for each item. Be specific: if a sandwich requires two slices of tomato, list “two slices of tomato” in the ingredients, rather than just “tomato.” While tight portion control may seem “stingy” to some, ensuring that your ingredients are being used at the expected rate is key to staying on budget. Being vague about portions or quantities in your cost estimations is one of the fastest ways to waste food and lose money.
Starting with your first item, break down the cost of each ingredient per order of the item based on the bulk cost of the ingredient. For example, if a recipe requires 2 oz. of cheese from a 5 lb. block that costs $20.00, the cost per item of the cheese is approximately $0.50. Do this for each of the ingredients in the item and add up the result. This is the total ingredient cost required to make the item.
Once you have this value, divide it by the menu price for your food cost value. For example, a cheeseburger plate that requires $3.50 worth of ingredients and sells for $9.99 will have a food cost of approximately 0.35, or 35%, meaning that 35 cents of every dollar made off of the item has already been spent paying for the ingredients. A good rule of thumb to keep in mind when pricing menu items is to try to keep the food cost at around 30% by charging about three times as much as you spent on ingredients. If a salad requires $2.50 worth of ingredients, the menu price should likely be somewhere around $7.50.
However, this is not set in stone. Each restaurant is different, and your prices will need to be chosen on a case by case basis. Each menu item should be priced to make money, but there is a fine line between pricing for profit and just plain over-pricing. Plan your menu carefully so that each item can be priced to bring in money without seeming unreasonable to the customer.
Once you have calculated the food cost for each item on your menu, you can then work backwards to determine how much of each ingredient you need to order to fulfill the estimated demand for a given period. This is where tightly managing your food cost is particularly important. Profit margins in restaurants are often slim, especially when a menu item uses a variety of unique ingredients, and over-ordering on one or more ingredients can lead to significant loses if the excess ends up in the garbage. Estimate your upcoming business carefully when ordering ingredients to avoid wasting money on unused food.
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