By: Daniel Schaefer, Solutions Manager, F&B
“What is food cost? How does it affect the success of my business? My family has been managing our restaurant for decades and we’ve never focused on our food cost…”
You have probably heard this before. Many privately owned restaurants and bars are not aware of their food cost. Following labor, food cost is one of the highest expenses in running a food and beverage operation. Here are some simple tips on how to decrease it while increasing your bottom line.
What is Potential Food Cost?
Potential (theoretical) food cost is a percentage that indicates what the food cost should be in a perfectly run restaurant following well defined recipes.
Potential food cost percentage can be determined by a simple equation:
Regardless of whether you are calculating the food cost of a single menu item or multiple menu items the formula remains the same. Potential food cost only takes into account the sales price of the item sold and the material cost for the restaurant to make the item. It does not account for other operational costs. Compare the potential food cost based on the recipe against actual cost, how are you doing? The difference is missed profits.
Why is Everybody Talking about It?
If you are unaware of what your food cost is, the beginning of the end may be near. For example, if the menu price of your bestselling cheeseburger is $6.50, but it costs you $5.00 in material goods to make, the potential food cost is 77%. Chances are, when you apply labor and overhead to this item, you would be losing money every time you sell this cheeseburger! The price of any menu item should take into account your operational costs like labor, electricity, rent, etc. The combined cost of food and labor should be less than 50-75%. Depending on the type of operation, food cost alone can be between 24% and 35%!
What Are Some Easy Tips for Decreasing Food Cost (and increasing your bottom line)?
The bottom line is: knowing your food cost and tracking your inventory is essential for your business to be profitable. Don’t wait – start today!