Food cost is a key metric for any food service business. It represents the total cost of all ingredients used in preparing and serving dishes over a certain period of time, divided by the total sales generated during that same period. The resulting percentage is your food cost percentage.
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Here’s How To Calculate Food Cost Percentage
There are a few different ways to calculate your food cost percentage. The most common method is to take your total food cost for a period of time and divide it by your total sales for that same period of time. This will give you your food cost percentage.
Food Cost Percentage = Food Cost / Food Sales * 100
Let’s say we want to calculate the food cost percentage for a pizza. Assume that the pizza costs $3.50 to produce, and it is being sold for $10.00.
To calculate the food cost percentage, we would divide $3.50 (the food cost) by $10.00 (the food sales). This would give us 0.35, which we would then multiply by 100 to get the food cost percentage: 35%.
This means that 35% of the selling price is being allocated towards the food cost.
Another way to calculate food cost percentage is to use a specific formula that takes into account the portion size of each dish and the cost of each ingredient.
This method is often used by restaurants that want to have a more precise measure of their total food cost percentage. Most modern restaurant software with inventory management and analytics can provide this data automatically.
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Beginning Inventory = $500
Purchases = $1,000
Ending Inventory = $200
Food Sales = $2,500
Food Cost Percentage = (500 + 1,000 – 200) / 2,500
Food Cost Percentage = 1,300 / 2,500
Food Cost Percentage = 0.52 or 52%
With a total food cost this dramatically high, you would want to consider your options to reduce your food cost or increase your prices as you’ll learn below.
No matter which method you use to calculate your food cost percentage, as a restaurant manager, it is important to track this metric on a regular basis. Doing so will help you identify trends and make necessary adjustments to your menu or operations in order to keep your food cost percentage within a desirable range.
Why Food Cost Percentage is Important
As a food service business, your food cost percentage is a key metric to track. It represents the total cost of all ingredients used in preparing and serving dishes over a certain period of time, divided by the total sales generated during that same period. The resulting percentage gives you an idea of how well you are controlling your costs and how profitable your business is.
If you want to know if your food cost percentage is normal, you can compare it to restaurant industry standards in the table below. Having this information can help you make changes to keep your food spending efficient.
|Food & Beverage Category||Industry Benchmark Food Cost %|
Using Food Cost Percentage to Set Menu Price
If you want to set menu prices that are both profitable and reasonable, you’ll need to calculate your food cost percentage for each dish. This will tell you which items are above or below the industry benchmarks. Then, you can make adjustments to your prices accordingly.
Keep in mind that food cost percentage is just one factor to consider when setting menu prices. You’ll also need to think about your overhead costs, labor, and desired profit margins. But with a little bit of planning, you can create a pricing strategy that works for your business.
If an item on your menu is priced above the ideal industry standard, you have a few options to consider.
- One is to increase the price of the item to fall within the standard.
- Another is to try and find new food distributors who can provide better prices on the ingredients for that dish.
If customers are unwilling to spend more money on an item, it may be necessary to remove it from the menu altogether.
Benefits of Tracking Food Cost Percentage Over Time
Tracking your food cost percentage over time can be extremely helpful in identifying trends and making necessary adjustments to your menu or operations. Doing so on a regular basis will help you keep your food cost percentage within a desirable range, ensuring that your business is profitable.
If you’re in the food service business, then you know that one of the most important factors in your success is controlling your food cost percentage. This number tells you what percentage of your total sales is going towards the cost of food, and it’s a key metric for determining your overall profitability.
There are a few different ways to calculate your food cost percentage, but the most common method is to take your total food cost for a period of time and divide it by your total sales for that same period. This will give you a decimal number that you can then convert to a percentage by multiplying by 100.
If you need a POS system to help you automate your food cost calculations, visit our homepage where you can search for the best POS solution for your business.