Keeping food costs well managed, with minimum waste and without compromising quality, is one of the key factors in a restaurant’s success. Without a proper idea of food costing, you cannot set menu prices, determine budgets or costs accurately, or- in all likelihood- stay afloat. The meez team dives into the concept of food costing, and everything you need to know about the practice, simplified.
Understanding Food Costing
Let's dive into the basics, but before you reach for a food costing calculator, know we're introducing meez's functionality for automated food costing at the end.
What Is Food Costing?
So, what is food costing? At its simplest, it’s the sum total you spend on the food you create dishes with. It’s not quite that simple, however. There are two aspects to consider:
Plate cost: the cost of the dish before you add margins. In short, the sum of the cost of all ingredients in the dish.
Period cost: the cost of food over a set period of time (week, month or year). This also needs a Cost of Goods Sold ratio, which we’ll cover below.
The exact dollar figures here aren’t the most useful. Instead, you want a percentage, showing how much total revenue is being eaten up by costs. Typically this figure (called the restaurant food cost percentage) is worked out either by taking all costs over a period, and dividing that by the sales for the same period, to create the period cost. Or use the cost of an individual menu item divided by its sales price and adjusting to a percentage for plate cost.
It’s worth noting that this isn’t the "prime cost," but it’s a key step in calculating it. Prime cost factors in labor, as well as your offered product costs. Overheads also need separate consideration. But running a tight ship starts with controlled food costing.
Why is Food Costing Important?
With that much math all in one, you’re probably wondering why it even matters. What is the importance of food costing? Not only are food costs one of the largest expenses a restaurant has, they're also where a lot of silly and unnecessary wastage and poor pricing creep in. Without properly controlled food costs, you will not make a profit. No profit, no success. It’s that simple.
We’ve looked at how, when combined with labor costs, food costing influences prime costs. Prime costs are one of the few costs you have direct control over in the restaurant business, but not if you have no idea what’s going on.
It also has a nuanced interplay with aspects like location, perceived value, and market demand for driving your menu pricing overall. Lastly, it’s also impossible to achieve any cost targets if you don’t prioritize accurate food costing. The shifts over time will help you determine a range of factors, from when a menu cost increase is needed, to where you need to reevaluate the menu overall.
Calculating Plate Cost and Period Cost Manually
Plate cost calculations can be painful manually, but it’s good to know the basics, even if you prefer a food costing app for speed and efficiency. Knowing how to calculate food costs is the first step in controlling them.
Hopefully, you already have standardized recipes that account for every single ingredient used, including spices and prep ingredients. You need to know the quantity and weight used for consistency and accuracy. From here, you would typically use at least a spreadsheet to allow you to input variable data, such as ingredient costs over time. One tiny mistake here can make a huge impact on your bottom line, so it has to be done in painful accuracy. Once you have a fully accurate serving cost for every ingredient used, you can create the plate cost: recipe cost divided by selling price x100 to reach a percentage.
Period cost looks even more intimidating. It involves that COGS formula we mentioned:
(Beginning Inventory + Purchases) – Ending Inventory = Food Cost
This tells you how much the food (or wine, or spirits, etc.) you produce your menu with costs. Pair it up with the sales revenue over the same period. Food costs, divided by food sales, and again x100 to create your percentage, and you have the period cost.
As you can see, it’s far easier to do this with software or an app, but knowing the basics helps.
What Should My Target Food Costs Be?
Comparisons with competitors aren’t everything, but they do help. Don’t get caught up on them, however, as they’re only useful for ballparks. Every restaurant will be different. Instead, concentrate on your maximum allowable food cost, or MFC, as a benchmark. This is the number you cannot pass if you wish to stay profitable. It is calculated by subtracting your overheads per month, labor costs, and profit goal, divided by total sales, from 100. The higher your resulting number, the healthier your balance sheet.
As we’re sure you’ve noticed, this is a lot of figure work, and you may not feel comfortable with any of it. Yet, without accurate figures, you will not run a profitable venture.
Introduction to Meez
This is why meez is an essential tool: It’s never been simpler to build an accurate, easy-to-maintain food and recipe database. Gone are the days when reliance on a manual spreadsheet was the only way to help manage food costing. It’s time to upgrade to a comprehensive recipe management tool that will help you establish and benchmark your goals realistically. Enter the cost for your ingredients with the unit of measurement each is sold by and adjust portion size, sell price or profit to analyze manage your menu pricing. Food costing has never looked easier- are you ready for the meez difference?
Keen to know more? The meez team is always happy to help, so don’t hesitate to reach out today.