An entire restaurant can go under if they’re not careful with their food cost percentages for every serving they offer. We’re going to guide you on how to calculate the proper food cost per serving for your restaurant. Hopefully, with this guide, you’ll get better at generating the right amount of revenue for you!
Food cost percentage
Food cost percentage is the proportion of the money you spend on buying food and beverage supplies for your restaurant. Food costs can be calculated in several ways. What we’re focusing here is on the food cost per serving.
Food cost percentage per dish breaks down which serving sells and which doesn’t. You can use food cost info to reign in your overall food costs and uncover which dishes you could charge more for. It’s also a way to take control of your food costs.
Food cost percentages help you to track overall costs and individual ingredient prices. This empowers you as a restaurant operator to make data-driven decisions for optimal spending, helping foster profitability.
Determine how much customers will pay for each item
Knowing your restaurant’s food cost percentage can help you make effective business decisions, like how much to charge for items on your menu for maximum profits. Restaurant operators like yourself have to balance delighting customers, maximizing revenues, and minimizing costs.
The average restaurant spends between 20 and 40% of its revenue on food.
Restaurant food costs are a major part of overall operating costs — making food cost percentages an important metric to be continuously monitored. An understanding of food cost formulas and the right mix of technology can help you consistently calculate your food cost percentage and let you take control of costs to optimize your restaurant finances.
Calculate the amount of food that you are going to use in a given month
By pricing menu items based on food cost percentage and COGS, you can determine if a menu item fits within your food cost margins. From there, you’ll know which menu items are most profitable and, in turn, which items to promote.
In 2018, a poor growing season left the world with a shortage of vanilla, making the price for the spice skyrocket. Bakeries and other restaurant concepts with an emphasis on desserts and baked goods felt the impact of this shortage.
Make a new recipe and see if it aligns with your ideal food cost percentage. If it doesn’t, see if you can adjust the recipe at all, or maybe you store it away for another time.
How to calculate food cost per serving
Calculating your food cost per serving isn’t all that hard. The formula itself is pretty simple:
Food cost per dish = Food cost of ingredients x Weekly amount sold
Total sales per dish = Sales price x Weekly amount sold
Now that you’ve calculated your food cost per dish, here’s the formula for calculating the ideal food cost percentage:
Ideal food cost percentage = Total cost per dish ÷ Total sales per dish
Check out the example below to see this ideal food cost percentage formula in action:
Total cost per dish = RM2,500
Total sales per dish = RM10,000
Ideal food cost percentage = 2,500 ÷ 10,000
Ideal food cost percentage = 0.25 or 25%
Let’s say your actual food cost percentage is:
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Beginning Inventory = RM15,000
Purchases = RM4,000
Ending Inventory = RM16,000
Food Sales = RM10,000
Food Cost Percentage = (15,000 + 4,000 – 16,000) ÷ 10,000
Food Cost Percentage = 3,000 ÷ 10,000
Food Cost Percentage = 0.30 or 30%
The ideal food cost percentage comes out to 25% while the actual food cost percentage comes out to 30% as we see in the examples above. We now know that there’s an extra 5%. This can either be due to waste, theft, or additional purchasing. Ultimately, you want your actual food cost to match or even be below your ideal food cost.
A good food cost percentage
On average, the food cost percentage is 28-32% in many full-service and quick-service restaurants.
Of course, there’s no exact “good” percentage. It all varies depending on the type of food you’re serving and the costs of operating the restaurant.
Optimizing your food cost percentage
There are many things you can do to optimize your food cost percentage. Here are a few:
Be smart about your menu pricing – raise prices on your menu by a small amount and factor this into your overall restaurant business plan.
Identify which menu items are bringing in the most profit and update your menu accordingly.
Use plenty of carbs on your menu – items like potatoes and pasta are generally cheaper to buy in bulk.
Be creative with your restaurant menu design to strategically suggest and promote more profitable items to guests.
Shop around at different wholesale food sellers to find the best prices for your restaurant.
Keep an eye on portion sizes – consider reducing your portion sizes if you see your servings coming back half-eaten.