Operating on an assumed food cost percentage? Learn why it’s so important to stop playing guessing games with your food costs.
Food costing, or the process of tracking the cost of all the ingredients used in a recipe, is still one of the most misunderstood areas of restaurant operations.
It makes sense why; if you’re a chef, wouldn’t you prefer to spend time serving beautiful and delicious cuisine to customers than doing “complicated” math problems?
If you're making anything from scratch, it's very hard to trace the cost of goods. This was true even before poultry, eggs, and countless other ingredients experienced historic price hikes in 2022.
So what’s a chef or operator to do? Discover why it’s important to stop playing guessing games and look into why your food costs are off.
Why is Food Cost Percentage so important?
Food cost percentage refers to the ratio of the amount of money a restaurant spends on food and beverage ingredients (food inventory) to the revenue generated from selling those ingredients as menu items (food sales). It is expressed as a percentage of the total revenue from food sales.
Knowing your food cost percentage is crucial because it serves as a key indicator of profitability and overall success in the restaurant industry. Restaurants typically operate on slim profit margins, usually around 3-5%. Therefore, keeping food costs at an appropriate level is essential for maintaining profits.
Monitoring your food cost percentage enables you to make smarter spending decisions, adjust your menu to maximize profits, gain a better understanding of supply chains and their impact on profitability, and update your menu based on available and affordable ingredients.
Food Cost Formula - How to Calculate Food Costs
To calculate your restaurant's food cost percentage, use this food costing formula:
((Beginning Inventory Value + Purchases) - End Inventory Value) % Total Food Sales = Food Cost Percentage
By using this food cost percentage formula, you can see how much money your restaurant makes from selling a dish compared to how much is spent on ingredients.
To calculate this cost manually, there are a lot of factors to consider including:
- Recording the initial-week food supplies received.
- Summing up how much each ingredient costs in a dish.
- Monitoring purchases made throughout the week following the initial inventory period.
- Conducting another inventory at the beginning of the subsequent week
- Aggregating the total food sales for each shift.
- Calculating actual food expenses using the above formula.
Instead of monitoring all of these things week to week, we highly recommend using a food cost calculator like the one offered in meez.
Food Cost Calculator
Whether you're looking to determine your food cost percentage, profit margin, or find the optimal selling price for a dish, meez's food cost calculator can do it all.
Once you've inputted the costs of the ingredients in your recipe, our Food Cost Calculator will instantly display the total cost and cost per unit. Our calculator will automatically calculate the cost based on the ingredient costs you've provided in a recipe.
With access to our 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.
How to calculate food costs more accurately: 5 tips to follow
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 $1.20/lb, but ultimately that’s not the actual cost of what ends up on the plate. A sliced onion might only have a 90% yield, meaning 10% is going into the compost or trash. After all is said and done, it might cost you $2.00/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 $8.00/lb, you're paying more than $16.00/lb!
There are countless other examples like the above in our recipes. And 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.”
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 cost 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.
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.
The Grizzly Paw, Executive Chef
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 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.
Get started with meez.
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