How to Calculate Food Cost Percentage (With Examples)

The way you value dishes in your restaurant’s menu could make or break your corporation. Worth a dish too excessive, and clients gained’t get them organized. Worth a dish too low, and also you gained’t generate sufficient income to cowl your bills.

Fortunate for you, we’ve acquired restaurant pricing right down to a science. We’re revealing learn how to set menu costs that can cowl your bills and make sure that your restaurant is financially wholesome. 

One of many key ideas you should perceive to set correct menu costs is your meals price share. This vital metric exhibits how a lot of your total gross sales are spent on components and meals provides. Conserving tabs in your meals prices will enable you to set menu costs and maximize income. 

On this publish, we’ll stroll you thru learn how to discover the next and use it to set menu costs:

However earlier than we dive in, what are meals prices precisely? 

 

What’s restaurant meals price? 

Meals price is the ratio of a restaurant’s price of components (meals stock) and the income that these components generate when the menu objects are bought (meals gross sales). Meals price is nearly at all times expressed as a share often known as meals price share, which we’ll cowl additional beneath. 

Whereas some eating places use meals price to find out the value of constructing a dish for a restaurant, others choose to make use of the Cost of Goods Sold (COGS), which measures the overall worth of stock used to make a dish, right down to the toothpick, serviette and garnishes.

 What to do earlier than you begin meals costing

Budgeting is a vital a part of operating a enterprise. It’s not one thing you do solely once you create your marketing strategy, however an ongoing course of that you simply monitor to maintain your restaurant worthwhile. Reviewing your price range regularly helps you retain observe of your funds and obtain success.

Though many people really feel anxious or confused when now we have to consider numbers, the method doesn’t must be troublesome and complex. Monitoring your money circulation and managing your restaurant price range could be simply performed with the suitable instruments, and also you’ll have peace of thoughts realizing you’re on high of every little thing.

An accounting software program helps you handle your books and information, in addition to your stock and transactions rapidly and precisely. If in case you have a POS system with stock administration functionality that tracks all of your stock and purchases, you possibly can merely sync your knowledge along with your accounting software program and the remaining will likely be taken care of.

Nevertheless, if you wish to go about it the old school method, listed here are just a few budgetary objects to remember:

• Monitor your entire numbers. Whether or not your POS system does it for you otherwise you do it your self, you need to know your prime price, or the ratio between your gross sales and price.
• Outline your accounting interval. Whereas most eating places observe a four-week accounting interval, you possibly can set it to no matter time size makes essentially the most sense for your corporation.
• Set price range targets. Budgets aren’t simply reflections of what’s occurring in your restaurant—they need to be guides that lead your restaurant to most effectivity.
• Give attention to a weekly operational price range. Excessive-level views of your restaurant’s monetary well being are vital, however there’s one thing to be stated for having a extra granular view of your operations as nicely. It might enable you to to trace your bills extra simply as a result of the size is smaller and extra manageable.

As soon as your budgeting system is firmly in place, you may get began with meals costing.

Meals price share defined

Whereas some restaurateurs don’t take meals price share severely, you shouldn’t be one in every of them. Sustaining as low of a meals price share as doable (with out sacrificing meals high quality) leaves extra gross revenue to pay for different bills and have income leftover. On this part, we’ll cowl:

• What meals price share is
• Why it’s vital to calculate your meals price share
• What the perfect meals price share is 
• The way to calculate meals price share
• Examples of learn how to calculate meals price share 

What’s meals price share? 

Meals price share is the worth of meals prices to income expressed as a share. The determine helps eating places set menu costs.

The way to calculate meals price share

To calculate meals price share, you should first have values for the next issues: 

• Starting stock worth: the greenback worth of the stock you bought at first of the week.
• Purchases: the greenback worth of the stock you buy all through the week and wasn’t a part of your starting stock. 
• Ending stock: the greenback worth of the stock left over on the finish of the week. 
• Whole meals gross sales: the greenback worth of your gross sales for the week, which you could find in your sales reports. 

Meals price share formulation

To calculate your meals price share, first add the worth of your starting stock and your purchases, and subtract the worth of your ending stock from the overall. Lastly, divide the consequence into your whole meals gross sales.

Meals price share defined

Let’s see how Johnny’s Burger Bar would calculate their meals price share utilizing these values:

• Starting stock worth = $11,000
• Purchases = $7,000 
• Ending stock worth = $15,000
• Whole meals gross sales = $8,000 

Johnny’s Burger Bar’s meals price share is 37.5%, that means that 37.5% of their revenues go in the direction of paying for components. That’s above the business common for burger joints, which makes Johnny marvel if he ought to tweak his menu costs. 

To know for positive, he must calculate his best meals price share and evaluate it to his precise meals price share. 

The way to calculate best meals price share

To search out your best meals price share, you first have to know two values:

• Whole meals prices
• Whole meals gross sales

Let’s say their whole meals prices had been $2,500 and, as we see above, their whole meals gross sales are $8,000. To calculate best meals price share, divide whole meals prices into whole meals gross sales. 

Because it seems, Johnny’s Burger Bar’s best meals price is 31%. Understanding that their present meals price share calculation is 37.5%, it’s clear that Johnny is lacking out on 6.5% extra income.  

What is an effective meals price share?

To run a worthwhile restaurant, most house owners and operators preserve meals prices between 28 and 35% of income. With that stated, there isn’t any such factor as an excellent meals price share; it varies relying on the kind of meals they serve and the restaurant’s overhead and working bills. 

A typical false impression about meals price share is that each restaurant ought to goal for an ideal quantity. In actuality, a wholesome share can fluctuate drastically relying on the merchandise you promote, meals price management and the market you serve. 

Meals price share examples for eating places 

For instance, a steakhouse can run a meals price share near 35% as a result of the price of its components are a lot greater. Then again, a restaurant that serves primarily pasta, which is affordable to purchase in bulk, would possibly run someplace round 28%. Each percentages are acceptable based on the context of the restaurant.

Every restaurant ought to calculate their meals price share and never depend on catch-all averages, however the common consensus is that the upper your whole restaurant expenses are (together with meals prices), the upper your menu costs have to be. 

Meals price per serving defined

Earlier than you establish the value of your restaurant’s meals, you need to know the way a lot they price to make. Particularly, you should work out how a lot it prices your restaurant to make one serving of every merchandise in your menu. On this part, we’ll cowl learn how to calculate your meals price per serving.

Meals price per serving formulation 

To calculate your meals price per serving (or meals price per menu merchandise), discover the sum of the ingredient price per serving. 

Value per serving defined

Johnny of Johnny’s Burger Bar desires to find out his well-known Johnny Burger’s price per serving. The dish consists of 8 ounces of floor beef, 1 sesame seed bun, 1 tablespoon of sauce, 2 slices of cheese, 2 slices of tomatoes, and a pair of potatoes.

Johnny buys his components in bulk and pays $19 for five kilos of floor beef. He calculates that 8 ounces of floor beef for a single burger prices his restaurant $1.90. Johnny does related calculations to find out the associated fee per serving of the remaining components within the burger.

• 8 ounces of floor beef = $1.90
• 1 sesame seed bun = $0.25
• 1 tbsp. of sauce = $0.10
• 2 slices of cheese = $0.90
• 2 slices of tomatoes = $0.50
• 2 potatoes = $0.75

Value per serving = $1.90 + $0.25 + $0.10 + $0.90 + $0.50 + $0.75 = $4.40

The components used to make the Johnny Burger price $4.40. 

Why is meals price share vital?

To essentially know the way your restaurant is operating, you should know your meals price share. Having a deal with on meals prices helps you resolve issues like dish costs, dish profitability, total prices and the place you possibly can optimize. The extra you recognize about your meals price share, the higher outfitted you’ll be to amplify selections about your restaurant and menu. 

Advantages of calculating meals price percentages

Perceive your meals prices and pricing

When was the final time you took a tough look inside your kitchen pantry? Calculating your meals price share requires you are taking an in depth have a look at the components you’re buying and the person price of every ingredient. You would possibly study {that a} sure ingredient prices greater than beforehand deliberate and would possibly now not make sense to make use of in your dish to maintain it worthwhile. If you perceive meals prices you can too adequately value your objects.

Check out new recipes 

If after doing all your meals price share evaluation you notice that sure objects would have to be priced too excessive to be able to stay worthwhile, you would possibly need to rethink the components you’re utilizing. Understanding your meals prices opens the door to recipe testing primarily based on knowledge. Perhaps there are different components you should utilize to scale back menu costs and even to only make a specific dish extra worthwhile.Testing completely different components is a good way to search out the right mixture to match your best meals price share.

Make good modifications to your menu 

Menu administration is crucial for a profitable restaurant. Suppliers change, costs improve and buyer habits and preferences are continually altering. By usually calculating your meals price percentages, you’re higher outfitted to make good edits to your menu and guarantee profitability.

Get to know your finest sellers and underperformers 

Do you promote out of particular objects continually? Are there dishes that not often get ordered? Have you learnt in case your hottest objects are your most worthwhile?  Accessing this data could make an enormous distinction when analyzing your menu. There is perhaps menu objects that price much less to make and make you more cash. Understanding your meals price will enable you to get a clearer image of menu efficiency. 

Perceive your meals price per location 

Do you run a number of places? Your meals prices would possibly fluctuate per department, making it much more vital to get to know the meals price share in every location. After you have your meals price share for all of your places you’ll be capable of perceive how each performs and the way menu merchandise recognition and profitability compares in every restaurant.

The way to decrease restaurant meals prices

Discover cost-effective distributors

Are you able to get the identical high quality components for a lower cost with one other vendor? Wouldn’t it assist to give attention to native suppliers to avoid wasting on transportation prices?

Alternatively, you could possibly negotiate higher phrases along with your present suppliers. Have interaction along with your present distributors and discover a win-win situation that helps you decrease prices with out making them really feel like they’re getting the uncooked finish of a deal. Perhaps you possibly can improve your order quantity or pay upfront. Or maybe you could possibly contemplate exploring long-term contracts to safe higher pricing. This strategy not solely gives you with price financial savings but in addition provides the provider a assured buyer for a specified interval, making it a mutually useful association.

Regardless of the case, leveraging bulk buying or committing to a long-term partnership might offer you extra favorable pricing and phrases, finally decreasing your total meals price.

Purchase components along with different companies or be part of a bunch buying group

Can’t afford to purchase in bulk? companion with different meals retailers so you should purchase components collectively. This may considerably scale back prices by way of bulk buying reductions and shared supply charges.

If you pool your sources, you and your companions can entry decrease costs which are usually reserved for giant orders, bettering your negotiating energy with suppliers. 

Not solely that, however you possibly can foster a group of companies supporting one another, probably opening up avenues for additional collaboration and mutual development.

There are additionally group buying organizations you possibly can enroll in, which supply collective shopping for energy for his or her members. That method, individuals can entry bulk buying reductions and most well-liked pricing that might be troublesome to barter individually. These organizations usually negotiate contracts with suppliers on behalf of their members, leveraging the mixed buy quantity to safe decrease costs on meals, drinks, kitchen tools, and different provides.

In case you’re in the USA, you possibly can take a look at firms and organizations like:

Simply keep in mind that these teams cost membership or service charge, so issue that into your prices. 

In case you’re a member of any restaurant commerce organizations, discuss to different members to get suggestions for which shopping for teams to hitch.

Plan your menus higher

You might have to rejig your menu a bit to make sure that you’re providing in-demand dishes whereas minimizing prices. 

Serve dishes with overlapping components so you possibly can scale back waste and stock necessities. Another choice is to give attention to seasonal dishes which have components which are extra inexpensive and at their peak high quality.

In some circumstances, you would possibly want to chop the fats, so to converse, by decreasing the objects on the menu. Double down on the dishes which are promoting, so you possibly can have higher management of your meals prices and income. 

Take for instance, Maynard, which makes a speciality of native, high-quality vegetarian and vegan meals. Maynard retains their menu concise and targeted by making certain they’re solely serving dishes that resonate nicely with their clients and have a excessive turnover.

“We’ve got a small house and a small kitchen, so now we have to maintain our menu small to remain in management. Every thing must be streamlined. If one thing isn’t promoting sufficient, it doesn’t keep on the menu,” explains Proprietor and chef Brodie Somerville.

To that finish, Brodie pays shut consideration to his POS stories and gleans actionable menu insights. 

“[Lightspeed Reports] are a very nice characteristic, notably the product stories. With product stories, I can see what merchandise are promoting or not promoting,” Brodie provides. 

Cut back portion sizes

Lowering your portion sizes can result in much less waste and require fewer components per dish, which then lowers your meals prices. 

Let’s return to Johnny’s instance above. In his case, he may serve a 6-ounce burger quite than an 8-ounce burger to scale back portion sizes and his meals price per serving.

In doing so, he not solely decreases his ingredient bills but in addition probably will increase the perceived worth of his meals. Prospects might recognize the standard and presentation of a well-crafted, appropriately portioned dish over sheer amount.

Spend money on expertise

Time and time once more, restaurant house owners say that the cash they spent on expertise, corresponding to an efficient restaurant POS system with a list administration system has saved them cash ten fold. It is because the suitable expertise will prevent time, present you all the info you want and can spot any discrepancies corresponding to theft, leakage or waste instantly.

Except for streamlining your operations and automating guide duties, the suitable restaurant POS can make clear knowledge and developments you should utilize to make smarter selections round your menu objects and components. 

Peter Marzulli, Director of Operations, RH Gold Hospitality says that their POS (Lightspeed) considerably enhanced their price administration methods.

“Not directly, [Lightspeed] has helped me scale back prices in a good quantity of how. From analyzing menu objects and whether or not they promote, whether or not there’s waste from following the stock.”

Peter provides, “It’s very useful [to be able to identify top selling and underperforming menu items]. It’s good to have an intuition realizing one thing doesn’t promote, but it surely must be backed up with agency knowledge. [Lightspeed] is a straightforward technique to do it.”

The way to set menu costs

It prices Johnny’s Burger Bar $4.40 and their meals price share is 37.5%, which makes its present menu value $11.70. How a lot ought to he cost for his burger to convey his meals price share right down to 31%? 

To find out that, we’ll use this formulation:

Primarily based on their best meals price share (31%), the menu value of the Johnny Burger needs to be $14.20. That’s an entire $2.50 distinction! 

Whereas it may not look like rather a lot at first, that additional $2.50 per burger provides up fast. If he sells 75 burgers a day, that $2.50 turns into over $65,700 in extra income per yr. Now, simply think about if Johnny optimized the meals price percentages for every menu merchandise, not simply his burgers.

Now, it’s clear that Johnny was underpricing his burgers. He decides to vary the value of his burgers to $14.20 and observe its affect on gross sales and profitability. 

 

The way to observe menu pricing’s impact on gross sales

Profitable eating places make a behavior of monitoring their menu costs and gross sales and making ongoing changes as meals prices fluctuate. 

After evaluating his present meals price to his best meals price, Johnny elevated the menu value of the Johnny Burger to $14.20. There are two doable methods the upper value may have an effect on gross sales: 

Situation 1: Burger gross sales decelerate

On this situation, gross sales of the Johnny Burger have gone down for the reason that value elevated.

This might imply that the value is simply too excessive for patrons. If Johnny desires to scale back the menu value of the dish to extend gross sales, he ought to do it strategically. Maybe he can discover partnering with cheaper distributors, decreasing portion sizes or utilizing cheaper components altogether to justify reducing his burger’s menu value. 

Situation 2: Burgers promote like loopy!

Conversely, if the Johnny Burger is promoting rather well with the brand new value, it may imply that clients can afford one other value bump.

To extend the value with out outpricing clients, Johnny may goal for a meals price share of 28%, which costs the Johnny Burger at $15.70. 

In both situation, it’s vital to stay vigilant and monitor how the changes you make affect gross sales. With some extent of sale with analytics capabilities like Lightspeed’s Advanced Insights,  you’ll be capable of entry an in depth breakdown of your menu’s efficiency and see how value modifications affect your menu. 

 Ideally, the menu value is inexpensive to clients and has a manageable meals price. When performed accurately, gross sales will cowl your ongoing restaurant bills and go away some leftover cash within the financial institution. 

Takeaways for managing meals price share 

Whereas it would look like a problem, rigorously controlling your restaurant’s meals price percentages assures that your restaurant is ready to pay its payments and switch a revenue on every sale. In an business with notoriously low profit margins, each cent counts. 

To recap, right here’s learn how to value menu objects at your restaurant for monetary success:

• Decide your meals price per serving for every menu merchandise.
• Calculate your present meals price share. 
• Discover your best meals price share. 
• Alter menu objects to match your best meals price share.
• Monitor how gross sales react to these changes. 
• Discover options to reducing meals prices. 

When you resolve on menu costs, you possibly can revisit your menu design and rethink the way you’re positioning every dish, from the way you describe menu objects to the format you select. Imagine it or not, the best way a menu is designed has a confirmed correlation with elevated gross sales.

 

Maximize your income with expertise

With Lightspeed’s restaurant POS, you possibly can supply tableside ordering, begin a loyalty program and examine stories to see what’s working. Chat with one of our restaurant experts to see how software program might help you streamline your operations and make knowledgeable selections.

FAQs about Meals Value Formulation

How do you calculate meals prices? 

To calculate meals prices, you establish the overall price of components used to make a dish and may use the fundamental meals price share formulation:

Meals Value Share = (Value of Substances / Promoting Worth) x 100 ​

What’s the formulation for price per portion? 

The formulation for price per portion is: 

Value per Portion = Whole Value of Substances / Variety of Parts

What’s the formulation for costing? 

In a broader sense, the formulation for costing a services or products typically contains direct prices (like components or uncooked supplies), oblique prices (like overhead), and labor. A easy technique to specific that is: 

Whole Value = Direct Prices + Oblique Prices + Labor Prices 

What’s the formulation for labor price per meal? 

The formulation for labor price per meal is:

Labor Value per Meal = Whole Labor Value / Variety of Meals Served

This calculates the labor price related to every meal served, serving to companies perceive and handle their labor bills relative to their gross sales quantity.

What is an effective meals price share? 

A superb meals price share usually ranges from 28% to 35% within the restaurant business, although this will fluctuate primarily based on the kind of restaurant, the price of components, and the pricing technique. Quick meals eating places might goal for decrease percentages, whereas high quality eating institutions might need greater percentages because of the price of premium components. 

What’s the normal value technique? 

The usual value technique entails setting a predetermined price for components, labor, and overhead bills primarily based on anticipated requirements or historic knowledge. This technique is used for budgeting and variance evaluation, serving to companies determine the place precise prices differ from anticipated prices.

What’s the normal costing mannequin?

The usual costing mannequin is an accounting technique used to estimate the anticipated price of manufacturing prematurely. It entails calculating a typical price for supplies, labor, and overheads, which serves as a benchmark for evaluating precise manufacturing prices. Variance evaluation is then used to determine and handle variations between precise prices and normal prices, enabling more practical price management and decision-making.