What Is Food Cost?February 26, 2013 By: Brian Duffy
Food Cost = A percent of sales that determines how much money we make or lose on what we sell.
To be a little more precise, actual food cost breaks down adding your beginning inventory and purchases together then subtracting them from your ending inventory. Once you have this actual food costs or usage you then divide it from your total food sales which equals your food cost percentage.
((Beginning Inventory + Purchases - Ending Inventory) / Food Sales) = Food Cost
Your food cost is an integral ratio and key to the success of any restaurant or bar because of its direct impact on profitability. A profitable restaurant typically generates a 28%-35% food cost. Add labor costs and these expenses consume 50%-75% of total sales. The impact that food cost makes on an operation is why it’s one of the first things you should examine if your venue is losing profits. Food cost can run amuck very simply. If you stop tracking inventory your food cost will begin to rise. You should be calculating your weekly food inventory on the same day so that if there is a problem you can attack it right away.
You would be amazed at the amount of chefs who all say the same thing… “I’ve got a great food cost.” However, in reality most chefs don’t really monitor the calculations in a way that allows them to grasp what the actual numbers are.
A good operation knows a few integral numbers:
- How much inventory they have on hand.
- How much they purchased.
- How much they sold.
With food costs rising and customers spending less, restaurant and bar operators must check their menus to ensure they are profitable. Thousands of independent restaurants fail each year and nearly 92% of them because they did not manage food costs wisely. Therefore, know your food costs. What a plate is being sold for on a menu verses what it costs to prepare it can save a business.
Make sure to ask your chefs and sous chefs what their inventory is on a consistent basis once trained on food cost calculations. By doing this properly you will be able to run a great food cost.