Your business can thrive or suffer based on how you price the dishes on your restaurant's menu. If you set a high price for a dish, customers may opt not to order it.
Conversely, should you undervalue a dish significantly, generating sufficient revenue to cover expenses becomes far-fetched?
Fortunately, we have grasped the science of restaurant pricing. Getting the best culinary experience in the world of hospitality is an exciting journey. Yet, successful navigation demands understanding your establishment's food and beverage costs. To run a successful restaurant, one must do more than merely create delectable dishes.
An acute understanding of the numbers behind the scenes is equally important. Let us explore its definition and present methods for calculating it while underlining strategies to control this critical element.
Our aim? To increase your restaurant's profitability amidst a fiercely competitive culinary landscape.
In this blog, we will walk you through how to find the following and use it to set menu prices:
1. What is food cost
2. How to calculate food cost
3. What is the food cost formula
4. How to calculate food cost for a recipe
5. How cost per recipe works
6. Food cost percentage explained
7. How to control food cost
8. Takeaway
What is Food Cost
Food cost is a ratio of the total cost of ingredients used in a recipe with income generated from its sale. Restaurants allocate a percentage of their total revenue to cover the expenses for ingredients and kitchen and bar-related costs. It holds utmost importance as it directly influences restaurant’s profit margins. Accurate calculation forms the bedrock of informed decisions it underpins pricing strategies, menu development and cost control.
What to remember:
● Food and beverage cost is the backbone of financial success in the gastronomic world.● Represents the percentage of a restaurant's total revenue dedicated to covering costs.
● Essential for maintaining profitability.
How to Calculate Food Cost
The food cost formula is a straightforward tool that necessitates an operation. Divide the total ingredient expense by the generated revenue then multiply this by 100. The resultant percentage symbolises how much of your income goes towards ingredients costs. It is an integral part of the hospitality sector for financial planning. A lower food and beverage cost percentage indicates better cost efficiency and higher profits.
A Step-by-Step Guide:
- Begin by tallying the total cost of ingredients used during a specific period.
- Add additional expenses, such as labour and overhead.
- Divide the total cost by the restaurant's revenue during the same period.
- Multiply the outcome by a hundred to derive the correct percentage.
A systematic approach is necessary for accurately calculating the food and beverage cost. Equally crucial, one must incorporate supplementary outlays like labour and overheads. Detailed execution of every calculation stands imperative.
What is the Food Cost Formula
To calculate the Food Cost Percentage, utilise the equation (Cost of Goods Sold divided by Total Revenue) multiplied by 100.
What equips us to determine the FC percentage?
● It is the cornerstone of economic control for any restaurant.
● It is an incredible tool for evaluating the financial health of your establishment.
To calculate food and beverage costs, use the formula:
How to Calculate the Food Cost for a Recipe
To determine the food cost of a specific dish, one must ascertain both the quantity and cost of each ingredient used in that particular recipe. Calculating the food and beverage cost for a specific recipe is important for menu optimisation. Begin by identifying all ingredients involved and assigning an expense corresponding to their purchase price.
This calculation involves: listing all ingredients, determining their quantities, and assigning costs per unit or weight. The summation of these individual expenses aids in acquiring a total recipe cost. To guarantee that each item on your menu enhances your overall profit margins, one must undertake an exhaustive process:
- a. Define the exact quantity of each ingredient used in the recipe.
- b. Assign a cost to each ingredient based on the overall purchase cost.
- c. Sum up the individual costs to obtain the total recipe cost.
- d. Divide the recipe cost by the number of servings for the per-serving cost.
How cost per recipe works
Harry, the owner of Harry's Hearty Pies, is eager to examine the price per serving for his iconic Hearty Pie. This delectable masterpiece comprises 8 ounces of seasoned minced beef, 1 puff pastry crust, 1 tablespoon of rich gravy, a handful of diced potatoes, 1 diced carrot, and a pinch of herbs.
Procuring his ingredients in bulk, Harry spends £14 on 5 kilograms of seasoned minced beef. Upon conducting the numbers, he establishes that an eight-ounce portion of minced beef for a singular pie inflicts an expense of £1.12 upon his establishment. He follows with similar calculations to ascertain the cost per serving for other components.
- 8 ounces of seasoned minced beef = £1.12
- 1 puff pastry = £0.40
- 1 tbsp. of white gravy = £0.25
- A handful of diced potatoes = £0.60
- 1 diced carrot = £0.35
- A pinch of herbs = £0.45
- Cost per serving = £1.12 + £0.40 + £0.25 + £0.60 + £0.35 + £0.45 = £3.17
To craft the Hearty Pie, the employment of ingredients incurs a total cost of £3.17 per serving. By understanding how much it costs Harry to make each pie, he can set competitive prices while making a profit.
Food cost percentage explained
For a restaurant to be profitable, food and beverage costs should be kept between 28 and 35% of revenue. Let us see how he would calculate the food and beverage cost percentage with the given data:
- Beginning inventory value = £15,000
- Purchases = £10,000
- Ending inventory value = £18,000
- Total food and beverage sales = £11,000
- FCP= (15,000 + 10,000) – 18,000 / 11,000
- FCP = 25,000 – 18,000 / 11,000
- FCP = 7,000 / 11,000
- FCP = 0.636, or 63.6%
The food and beverage cost percentage of Harry's Hearty Pies stands at 63.6%, implying that their ingredient costs consume 63.6% of all revenues generated. Harry might want to consider adjusting his menu prices to maximise the financial performance of his pie shop.
How to Control Food Cost
Effective control over food costs is the key to surviving and generating profit in the competitive restaurant industry. It can be easily accomplished by regular reviews of supplier agreements, and efficient inventory management that minimises waste. Even judicious use of ingredients by training kitchen and bar staff appropriately, and strategic adjustment of menu prices based on market trends. Effective strategies include:
Regular Price Evaluation
● Regularly review supplier prices to ensure you are getting the best deals.
● Adjust menu prices accordingly to accommodate fluctuations in ingredient costs.
Inventory Management
● Implement a vigorous inventory management system to track stock levels.
● Avoid overstocking perishable items to minimise wastage.
Menu Engineering
● Analyse the popularity and profitability of each menu item.
● Focus on advertising high-margin dishes by giving offers.
Portion Control
● Train kitchen and bar staff on consistent portion sizes to prevent overuse of ingredients.
● Monitor plate waste and adjust portion sizes accordingly.
Technology Integration
● Utilise restaurant management software for accurate real-time tracking.
● Use tech to manage the ordering process and reduce errors.
Staff Training
● Train staff to minimise spillage and avoid mishandling of ingredients.
● Foster a culture of cost-consciousness among the entire team.
Takeaway
Though it may appear burdensome, meticulous control over your restaurant's food and beverage cost percentages guarantees financial stability. It ensures bill payments gets you enough profit from each sale. In an industry characterised by infamously slim profit margins, the value of every cent intensifies a factor not to be overlooked.
Here is a small recap of the blog:
● Decide your food and beverage cost per serving for each menu item separately.
● Calculate your current food cost percentage.
● Revise menu items to fit your ideal FC percentage.
● Monitor how sales react to those adjustments.
● Look at alternatives to lower food and beverage costs.
Once you finalise the menu prices, recheck your menu design to choose different layouts. Surprisingly, there is a correlation between an increased sale and an efficiently designed menu.
Understanding the science of calculating food and beverage costs is important for achieving success in the culinary world. Restaurateurs can strike an impeccable balance between creative culinary expression and economic diplomacy by implementing effective strategies.
StockTake Online
How can technology streamline food and beverage cost management? STO offers real-time reporting insights into inventory.
The evolving culinary landscape necessitates advanced tools, to which StockTake Online responds with a tailored and modern solution. Our software provides the restaurant industry with real-time reports that help restaurateurs to accurately measure stock levels. It helps reduce wastage which makes it sustainable.
By investing in technology that works neck to neck with your inventory management practices, you are investing in your restaurant's future. This indicates a commitment to sustainability, efficiency, and innovation.
