Analyzing Your Food Cost
Your restaurant is busier than ever, the service is impeccable and the food is superb. If that’s the case why aren’t you making more money?
Have you checked your food cost lately? The key to the success of any restaurant is your food cost as it directly impacts your profitability. Generally, a profitable restaurant generates 28-35% food cost. Combined with the cost of labor these expenses eat up 50-75% of total sales. Food cost is one of the first things we look at when our clients are struggling, as it has a great impact on the bottom line. It also effects food quality and the value provided to the diner.
To make matters worse, many of the restaurant managers are not calculating the food cost correctly and even if they do, they don’t fully understand the process. Food cost percentages must be ascertained accurately. Once it is determined the ratio can be compared to the industry averages. When the food cost is accurate, steps to improve the bottom line can be taken.
The following is a step-by-step guideline on calculating food cost:
1. Time Frame – Work with you accountant/professional and managers and set up a time to analyze your food cost.
2. Food Sales — Total the customer checks or the reports from point of sale register and only include sales generated from food sources.
3. Cost of Food Sales — The cost associated with food ales are made up of purchases and inventory level adjustments. The amount of purchases for the time period should be straight- forward. Often not included, yet equally important in determining cost of food sales is the inventory adjustment.
4. Food Cost Percentage — The final step – put the numbers together.
Food Cost = Cost of Food Sales/Food Sales
Compile your sales and costs regularly and consistently and compare them to your previous performance. You will find this will be helpful in identifying problems and trends. Note; a decrease in food cost is as important to pay attention to as an increase.
These simple steps will give you a guideline on how to calculate and lower food costs that will ultimately help you achieve your goal and have a favorable impact on your bottom line.
For the sake of making a profit, inventory your food cost today and you will enjoy running a successful and profitable restaurant. If you would like my extensive restaurant knowledge to guide you through this or other troubling situations in running your restaurant, contact me for a complimentary consultation.