Calculating Food Cost
Chefs are managers and must be able to control food costs in the kitchen. Those who can’t will be out of a job quickly. But controlling costs is everyone's responsibility and the chef must convey this message to their culinary team from the cooks to the dishwashers. Food cost is tied to properly training your crew so that they can be efficient, control portion sizes, and reduce food waste. Here are a few more ways to control costs.
How to Calculate Food Cost
The two ways foodservice establishments use to determine food costs are:
Theoretical Menu Plate Cost – Individual portion cost for each menu item
Overall Food Cost Percentage – Based on the monthly cost of food as compared to sales
Calculating Theoretical Plate Cost
Calculate the cost of each menu item and include all components of the plate. Plate cost includes production trim and waste, meat or vegetable trimmings for example. Some plate costs use multiple preparations, such as the truffle demi-glace in this recipe, that requires the preparation of a brown stock and a brown sauce before the small sauce is made. Other recipes, like the potato pave, will have trim from peeling and cutting the potatoes, plus waste from portioning them. All of these factors must be considered before a true plate cost can be determined.
Angus Filet Mignon, 8oz $30
Chipotle Coffee Rub, Truffle Demi Glace, Haricot Vert, and Potato Pave
A Q factor is the cost of anything extra that is required in the production and service of the menu item. These include complimentary items like bread, butter, and even salt and pepper. Typical Q-Factors add about 10% to the food cost.
Q Factor Itemization
Salt & pepper
Condiments, ketchup, mustard, salsa & chips, soy sauce, hot sauce
Bread or rolls
Garnish for the plates
After dinner mints
Ice for water glasses
Waste from over production, spoilage or improper cooking (re-fires, burned, etc)
Q Factor can be as much as $3 in a sit down restaurant
Determining Menu Price
Menu price is determined by several factors including:
Food cost percentage
Perceived customer value
Menu Price Based on Food Cost Percentage
Once a plate cost is established for a menu item the selling price can be set. Typical food cost percentages run 20-40% of the overall operating cost of an establishment. Most sit-down restaurants are in the 30-35% range. Caterers and banquet operations, because of guest count guarantees and set menus, could have food costs in the 25-30% range. To determine the menu price use the following formulas.
Menu price based on a 30% food cost the formula:
$7.15÷.30 (30%) = $23.83
The menu price would be rounded up to $24 or even down depending on:
Perceived customer value
Foodservice operations will set a theoretical budget with sales goals and projected targets of spending for food, labor, and overhead. The projected budget is an estimate based on sales history and forecasting trends for both sales and expenses of the operation. Setting a budget helps to focus the goals of the operation so that the manager and chef can make adjustments as needed to maintain financial stability.
Actual Food Cost
This is determined by doing a physical inventory and comparing it to actual sales. This method requires accuracy in recording the inventory in a consistent way. The mark of a well-managed operation is how close the theoretical and actual budgets come together.
Actual Food Cost Formula
Menu Mix, Menu Pricing, and Margins
Some menu items are higher profit and lower cost than others. Soup and pasta are typically a low cost/high markup item. Some menu items like soup, may have a 10% food cost while other items, like steaks and lobster, may be 40% or more. The goal in writing a menu is to have a balanced mix of menu items to achieve a consistent overall food cost that is in line with the monthly operating costs.
Raw Dollar Revenue and Menu Mix Comparisons
Just because a menu item like soup may have a low food cost percentage doesn’t mean you can bank the success of the operation solely on soup. Lobster tails may have a high food cost percentage, but will bring in more raw dollars than the soup. In fact, analyzing raw dollar revenue will reveal that certain items, although high in food cost, can yield more income for the establishment.
This menu mix shows an average food cost of 32%. While soup, salads, and chicken show a lower than average food cost, steak and lobster are higher. Selling 20 soups at a 20% food cost sounds good but only brings in an $80 profit margin, while selling 20 lobsters will yield $500. Lobster brings in more raw dollars per item and higher profit margin than soup. If more lobster is sold it will bring in more revenue than the equal number of chicken or steak. So food cost percentage shouldn’t be the sole determining factor in menu mix and pricing but rather the the sales margin.
Foodservice Income Statements
Income statements show how much money was earned from the sale of food and beverages, and how much money was spent on goods, services, and overhead. They are usually completed on a monthly basis and compared from month-to-month to determine if sales and costs are as projected.
Cost to Sales Ratio
Because raw dollar costs are hard to compare from one period to the next, a cost-sales ratio is commonly used and displayed as a percentage of sales. Analyzing the cost ratios, the operator can easily target problem areas. These areas can be investigated and changes can be made to maximize profits.
Food Cost in Perspective
The foodservice business operates on very thin profit margins. The food cost is not the sole cost of running a food business. Here is an example of the food cost and sales price of a pizza. While the profit on this pizza appears to be over $10, there are additional costs that must be considered, including labor, rent, and other expenses. Once all of these costs are calculated most foodservice operation profits are typically in the 3-5% range.
Ways to Control Food Costs
Kitchen Organization – Establish a standardized system for ordering, receiving, storing, and production
Employee Training – Train everyone to follow the system by adopting standardized recipes and procedures that control portions, use trim and leftovers efficiently, rand educe spoilage and waste
Standardized Recipes and Procedures –This is done so that there is consistency in production and food costs
Menu Costing – By calculating a per portion plate cost for each menu item, a realistic selling price can be set
Portion Control – One of the easiest ways to control food cost is to establish standardized portion sizes, and to train employees so they know and use them
Production Forecasting – By using sales history to determine production you can reduce food waste and overproduction. Establish a prep sheet with par levels for all food items to help your staff in planning production
Overproduction – This results from lack of proper forecasting based on a sales history which increases waste not just in food but also in labor costs
Improper cooking and re-fires – Proper staff training will reduce waste occurring from improperly prepared food
Using leftovers and Trim – Re-purposing trim or the overproduction of food for other preparations is a trick that will help to reduce waste and increase profit margins
Ordering – Improper ordering of food leads to spoilage and ties up money in excess inventory
Inventory – A regular inventory is important in determining if costs are in line with the budget. A physical inventory is usually done once a month, but may be done weekly, or even daily, if food costs are out of control
Theft - Dishonest employees always find a way to steal, so tracking inventory and securing expensive food items will help reduce costs
Waste - Properly trained employeeswaste less and are more conscientious; periodically check to see what gets thrown out
Purchasing Analysis – Having an alternate vendor for your food and beverages allows you to do comparison shopping to keep purchasing costs in line
Sales and Service – An established training program will reduce “comps” resulting from poor service, and also ensure that the staff is charging the correct prices for menu items