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Operating with an assumed restaurant food cost percentage? You're not alone.
Many chefs and operators rely on estimates for their food expenses, but in today’s challenging economic environment, this approach can be risky. With rising ingredient prices, volatile supply chains, and slim profit margins, precise food cost analysis is more important than ever.
Restaurant food costing, or the process of tracking the cost of all ingredients used in a recipe, remains one of the most misunderstood aspects of restaurant operations. It’s no wonder why—if you’re a chef, wouldn’t you rather spend time creating beautiful, delicious cuisine than dealing with “complicated” math problems? And if you’re making anything from scratch, tracking the cost of goods can feel nearly impossible, especially with recent historic price hikes for poultry, eggs, and countless other ingredients.
So, what’s a chef or operator to do? Learn how to calculate the food cost percentage for your restaurant and discover why food cost control is so crucial. Plus, get 5 tips for calculating food costs accurately to keep your business profitable.
Stop playing guessing games and learn how to take control of your restaurant's financial health.
Why Food Cost Control is Crucial
Food cost control involves tracking all expenses related to the ingredients used in your recipes. It’s a vital yet often misunderstood aspect of restaurant operations. Many chefs would rather focus on creating dishes than on what they see as complicated calculations. However, mastering your food cost percentage can be the key to thriving instead of just surviving.
Food cost percentage—defined as the ratio of ingredient costs to sales revenue—empowers better decision-making and profitability. Here’s why it’s so important:
- Informed Decision-Making: By understanding food cost percentages and calculating each ingredient’s recipe cost, you can ensure dishes align with your profit targets. This helps you identify your most profitable items and focus your promotions effectively.
- Menu Optimization: Using food cost percentage for menu engineering allows you to make informed decisions about menu pricing, ensuring your offerings are both appealing to customers and profitable for your business.
- Actionable Insights: A reliable food cost calculator enables you to monitor and adapt to fluctuations in supply costs, helping you control your expenses better. It provides real-time data, allowing you to make swift adjustments to your menu and purchasing strategies.
What is food cost control?
Food cost control involves tracking all expenses related to the ingredients used in your recipes. It’s a vital yet often misunderstood aspect of restaurant operations. Many chefs would rather focus on creating dishes than on what they see as complicated calculations. However, mastering your food cost percentage can be the key to thriving instead of just surviving.
Food cost percentage—defined as the ratio of ingredient costs to sales revenue—empowers better decision-making and profitability. Here’s why it’s so important:
- Informed Decision-Making: By understanding food cost percentages and calculating each ingredient’s recipe cost, you can ensure dishes align with your profit targets. This helps you identify your most profitable items and focus your promotions effectively.
- Menu Optimization: Using food cost percentage for menu engineering allows you to make informed decisions about menu pricing, ensuring your offerings are both appealing to customers and profitable for your business.
- Actionable Insights: A reliable food cost calculator enables you to monitor and adapt to fluctuations in supply costs, helping you control your expenses better. It provides real-time data, allowing you to make swift adjustments to your menu and purchasing strategies.
Common Challenges in Calculating Food Cost Percentage
Food cost percentage serves as a key indicator of profitability and overall success in the restaurant industry, especially since restaurants typically operate on slim profit margins, usually around 3-5%.
Calculating food cost percentage can be tricky due to issues like yield loss, unit conversions, and recipe specificity. Here’s how to tackle these challenges:
- Yield Loss: Not accounting for yield loss can inflate your costs. For example, an onion costing $1.23 per pound might actually cost closer to $1.78 per pound after factoring in the 32% loss due to peeling and chopping. Always include yield calculations in your food costing formula.
- Improper Unit Conversions: How you purchase a product isn’t always how you use it. For example, you might buy a case of lemons but only use a few ounces of juice. Incorrect unit conversions can throw off your food cost calculations.
- Lack of Specificity: Using vague units like “can” or “tub” without precise measurements can lead to significant discrepancies. Be specific about quantities and preparation methods to get accurate food cost percentages.
How to Calculate Your Food Cost Percentage
To calculate your food cost percentage, use the following formula:
For example, if your beginning inventory is $13,000, purchases are $6,000, and ending inventory is $15,000, with total food sales of $12,500, your food cost percentage would be:
When is Cost Per Serving More Relevant Than Unit Cost?
Cost per serving is often a better metric for food costing than unit cost when dealing with complex recipes or bulk ingredients. This method focuses on the actual cost of a single serving, allowing for more precise pricing and portion control. For example, if you’re serving a dish with multiple components, calculating the cost per serving helps maintain consistency and profitability.
What is a Food Cost Calculator?
A food cost calculator is a tool used by restaurant owners and managers to determine the cost of ingredients for a particular dish or menu item and to understand various metrics related to food costs. These calculators, whether software applications, spreadsheets, or online tools, help streamline the process of calculating food costs, pricing menu items, and managing overall profitability.
Common Metrics a Food Cost Calculator Helps Understand:
- Food Cost Percentage: The ratio of the cost of ingredients to the revenue generated from selling those dishes. This percentage is calculated by dividing the total food cost by the total food sales and multiplying by 100.
- Portion Cost: The cost associated with a single serving of a dish, ensuring consistent portioning and maintaining standard costs across servings.
- Profit Margin: The difference between sales revenue and total food cost, indicating profitability before accounting for other operating expenses.
With access to meez's extensive database of over 2,500 system ingredients, complete with yield, prep loss, and unit of measurement equivalencies, you can quickly and accurately cost your recipes. This empowers you to make informed decisions and take your culinary business to new heights.
See meez's food cost calculator in action.
How to calculate accurately: 5 tips for restaurant food costing
While creating a positive dining experience is essential to getting people through the door, it doesn’t necessarily translate to profit margins. You don’t want the true cost of your ingredients to be greater than the menu price. At the same time, you don’t want to price dishes so high that customers won’t order them.
To help you cost food more accurately, we asked our team of culinary industry pros what they’ve seen firsthand as start-stoppers to proper costing. Below are a few tips based on their decades of experience.
Tip #1: Always Consider Your Yields
Figuring out the true cost of a menu item is more than assuming your yield is 100%. First, you must account for shrinkage, waste, trim, and any fabrication before a dish is served.
Let’s see how this typically plays out in the kitchen:
- Costing an onion. Your invoice may say it costs you $1.23/lb, but ultimately that’s not the actual cost of what ends up on the plate. A brunoise onion only has a 68% yield, meaning 32% is going into the compost or trash. After all is said and done, it might cost you $1.78/lb.
- Costing herbs such as mint. Did you know you lose more than 50% of the mint when you pick the leaves for a salad?! If you're not using the mint stems, that means you're not paying $10.00/lb, you're paying more than $20.00/lb!
There are countless other examples like the above in our recipes. And restaurant food costs can add up over time.
“I strongly believe ingredient yields are the number one obstacle food professionals face when they're trying to get accurate food cost calculations. Many chefs simply don’t use ingredient yields properly. A yield percentage on an ingredient that's fabricated is just about counting how much is lost in the process.”
Gabe Ross
Head of Process and Implementation, meez
Tip #2: Have Proper Yield Conversions
It might seem obvious, but if you don't measure the quantities of your ingredients in units that are measurable, you will not know how much of the ingredient is in a recipe. This means writing a recipe with weight or volume-based measurements like fluid ounces, cups, milliliters, and pounds.
Staying away from variable “measurements” like a leaf of lettuce or a slice of cheese, or container units such as cases and cans is good practice.
For example, say your stock recipe requires a case of chicken bones. Your go-to vendor may sell a 40-pound case of bones at $28.50. But things could change. The vendor could start selling 30-pound cases at the same price or 50-pound cases the next week for a couple of bucks more. Because the recipe technically changes every time the case size does, your true restaurant food costs ends up inaccurate.
Tip #3: Be Specific With Your Prep Actions
It’s common for some recipes to be more of a guide for experienced cooks. This is fine if your goal is to show the process of putting together a dish. But if you want to cost your recipes, you need to be more detailed and write down your prep actions. Instead of just saying onion, you want to say sliced onion, diced onion or whatever else applies to your yield percentages. All of these details have to be reflected in the final recipe that ends up on a customer’s plate.
If you incorporate the measurement of each ingredient and capture yield percentages while developing a recipe, it saves you time. Because you're already in the process of figuring out what goes into the dish, you can easily combine, experiment and change quantities.
While you can't expect your team to weigh everything every time they make a dish, the first time they make a recipe, they need to see what the actual quantities look like. This way they can follow the recipe measurements within approximation when they are eyeballing it later on.
What if I’m a baker?
As a baker, your food costing process and calculations are very different compared to something like a full-service restaurant. You expect things like chocolate or specialized ingredients to be costly, but that your baking basics would remain in the same price range.
Unfortunately, this is no longer the case. Butter and eggs have seen massive price increases in the last twelve months. If you have only calculated recipe costs once, your food cost percentage will be off.
I’ve seen firsthand with my own restaurant how much easier it is to monitor prices and keep track of fluctuations over time with meez. I don’t have to depend on a cost index with a spreadsheet anymore and can make adjustments based on these price changes easily.
Ursula Siker
Account Executive at meez
Tip #4: Don’t Just Price Out Your Protein
When 70% to 80% of a dish’s price comes from the protein, it's pretty easy to tack on a couple extra dollars for starch and veg and then call it a day. This seems like a smart strategy, however, you're missing so much by taking this shortcut.
Running a restaurant is such a nickel and dime business. If your restaurant’s food cost calculations are just a little off, it adds up quickly.
For example, say you sell a steak dish and the cost of the dish is off by $0.25. If you sell 50 of these a day, you’ll end up losing out on about $600 per month. And that’s for only one dish, not your full menu.
“It used to take me at least a week to cost a new menu and have training manuals, recipe books and allergen guides. Now it's all one step and I can do it in a day.
Ross Hanson
The Grizzly Paw, Executive Chef
Learn more about how The Grizzly Paw consolidated their restaurant food costing with meez
Tip #5: Keep Track of Your Food Costs, Not Just Your Inventory.
Whether you do it quarterly, or have a team behind you costing food monthly, every time you have a new invoice, you should be keeping track of costs and making adjustments.
No one likes working with a spreadsheet and doing all the manual work that goes with managing it correctly. And ERP and inventory systems claim to calculate accurate restaurant food costs. However, these systems have little understanding of how chefs actually think, create, and use recipes day to day.
Chefs and restaurant operators need a space where they can take full ownership of their food costs and recipes as a whole.
Try meez, the #1 Restaurant Food Costing Software
For total visibility into your restaurant’s recipe and ingredient costs, your best bet is to work with a tool like meez that is built by chefs to address the unique challenges of restaurant food costing.
With meez, you’ll enjoy:
- Actually-accurate costs. Know the cost of every ingredient, account for yield loss from prep and create custom units of measurement. Let us figure out the precise math for you.
- Simple purchase item importing. Send us your invoices, pull costs from back-office systems, bulk upload your ingredient cost tables, or add costs to each ingredient yourself.
- Receive real-time updates. Use our food cost calculator to understand how your food cost % changes as you adjust the sell price or your recipe.
Want unlimited recipes & recipe books, scaling, prep steps, built-in yields and more? Sign up for a FREE meez account or book a demo today.
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