A Beginner’s Guide to Restaurant Food Costing

Did you know that 75% of US restaurants struggle to generate profit due to inefficient food cost management? Food costing is crucial to generating higher profits and running a successful restaurant business.

Dive into this blog to understand the importance of food cost management. Learn about the essential calculations along with tips on controlling food costs.

Importance of Food Costing in Restaurant Business

Food cost refers to the expenditure on purchasing raw materials for each dish on a restaurant menu. It is a key aspect of each dish’s selling price. Identifying food costs helps improve the profit margin for higher revenue.

Here are other benefits of calculating food costs-

• Identify top-selling items to set menu pricing accordingly.
• Understand the cost of each ingredient to know their impact on food costs. It helps manage expenses when there are sudden price hikes on these ingredients.
• Identify and control food wastage to avoid losses.
• Manage food quality and portions with consistent food costs.

Essential Calculations to Determine Food Costs

Four calculations help you determine and manage food costs.

1. Calculate the Actual Food Cost

Actual Food Cost in a given period refers to the total value of ingredients used. For that, you need to collect data like

• Starting inventory (stock value at the beginning of the period)
• New purchases (Stock purchased during the period)
• Ending inventory (Value of stock left at the end of the period)

Here’s the formula to determine Actual Food Costs-

Actual Food Cost= Staring inventory+ New purchase- Ending Inventory

• Calculate the Food Cost Percentage

Calculating food percentages helps you analyse the food cost management over a period. By comparing actual food costs and turnover, it is easier to identify issues and make changes for better profits.

The formula is-

Food cost percentage= (Actual food cost/ Turnover) x 100

Ideally, the food cost percentage should be between 28-30%.

• Identify Food Cost per Dish

There is room for improvement if the food cost percentage is not within the optimum value. Calculating the food cost per dish can help identify the profit margin on each item and improve the food cost percentage.

Food cost per dish= Cost of ingredients X Quantity Sold

• Determine the Ideal Food Cost

Ideal food cost is the expense you may incur in a hypothetical situation without food wastage or spoilage. These are two basic calculations-

• Ideal food cost per dish= Total cost of each dish X Total sales of each dish
• Ideal food cost percentage = (Ideal food cost/ Turnover) X 100

Compare the ideal and actual food costs to analyse where the losses occur.

While these calculations may look complex, efficient restaurant billing software can help you manage them easily.

How to Control Food Costs?

Knowing the calculations makes it easier to manage the food costs without compromising quality. These are some of the best practices to follow-

• Implement a standardised system. Streamline orders, receipt, storage, and production using smart restaurant management solutions.
• Determine menu cost using the calculations discussed above. Analyse the cost of every dish to set profitable prices.
• Take regular inventory of the stocks to determine how much is needed and how long the stocks will last. Using a smart restaurant inventory management tool can make the process easier.
• Establish consistency in the recipes. Set standard ingredient measures, portion sizes, etc.
• Utilize restaurant POS software to assess sales history and forecast production costs. This can help avoid overproduction and food wastage.
• Train your employees to manage food wastage. Educate them on how to manage portions and handle leftovers.

Wrapping Up

Mastering the above calculations and utilising the essential tips can help you implement optimal food costs effortlessly.

There is no need to worry about handling vast numbers and navigating spreadsheets. Food cost and inventory management are now easier with an advanced restaurant POS like QPOS. All the data you need is a single click away.

Utilise smart solutions to generate higher revenue and take your restaurant business toward success.