How To Price Your Restaurant Menu Using Food Cost Calculation | Food Market Hub

How To Price Your Restaurant Menu Using Food Cost Calculation

When determining the price of an item on your restaurant menu, it is important that you first calculate your food cost.

The cost of food ingredients, produce, and other essential items used in the running of a restaurant kitchen are constantly changing, which is why you need to factor all these in while setting the price of each item on your menu.

Apart from the calculation of ideal food cost, you must also continuously check out the actual food cost once you start selling the particular items on the menu. There is usually a big difference in the ideal food cost and the actual food cost.

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In this post, we will be helping you determine the cost of the item you are going to introduce on your menu. To do this, you will need to first check out the individual prices of each item on the ingredients list. To calculate the food cost per unit, you will then have to divide the total food cost by the number of items sold.

Doing this before you start selling your item will give you your ideal food cost. Once you start selling the item on your menu, you will have to recalculate the food cost taking into consideration wastage and fluctuating ingredient prices. This will be your actual food cost.

Calculating your actual food cost on a regular basis and comparing it with your ideal food cost will give you a clear picture of what changes you need to make in your process to cut down actual costs.

Determining Your Ideal And Actual Food Costs

The easiest way to calculate the cost of a menu item is to calculate it in terms of batches. It can be tedious to calculate a per-plate cost if you are considering just a plate of your food. If you calculate it in batches, you can easily account for the tiniest of ingredients such as salt and oil that goes into each plate of food.

Once you have calculated your food cost for the whole batch, you can then divide that number by the number of single servings. This will give you an ideal food cost per unit.

Now, the ideal food cost per plate will not give you the real cost. There will always be food wastage, spillages, human error, and spoilage of food. At the end of the day, the ideal food cost is not the real food cost that you spend on each dish – it usually turns out to be more.

Sometimes, you may even be sending out bigger portions than the ones you calculated for. Sometimes you may have planned to buy a particular ingredient in bulk, but then the amount you ordered may not have been enough to be considered bulk and bought wholesale.

ideal and actual food costs

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Sometimes produce and meat sell for higher rates when they are not in season or need to be imported. Sometimes, there may have been errors in your food cost calculations.

For this reason, it is recommended that you do another actual food cost calculation that will give you a better picture of how much money has been actually spent on each plate of food.

To do this, you must recalculate your food cost after you have bought your ingredients, used them up, and sold the food that was prepared using all those ingredients.

Calculating your actual food costs and comparing it with your ideal food cost calculation will give you an idea of whether on not you are staying within the costs you have predetermined.

However, be warned that it is nearly impossible to break down food costs in terms of each item of food. This is because ingredients such as onions, garlic, sauces, salt and spices, oil, and rice are used in various dishes and not just one. Even so, it is handy to have an estimate of your total food cost and keep a check on how much it is deviating from your ideal cost.

Calculating Your Food Cost Percentage

Your food cost percentage is calculated by summing up your total food costs and dividing that sum by the total revenue from your food, or your gross sales.

A good food cost percentage would be between 25-35%. However, you can still manage your food costs if you cut down on other costs such as staff and maintenance costs.

Simple Food Cost Formula

Did you know that more than 50% of restaurant owners say that their top challenges are high operational and food costs? 

This is why it is crucial to calculate food cost percentage.

Calculating Food Cost Percentage

Most people dread calculating food costs for their restaurants because they feel that it is a tedious process. However, if you use simple calculations and an easy formula, calculating your food cost percentage should be a breeze.

In simple terms, food cost percentage is defined as the cost of goods sold divided by total sales. Cost of goods sold refers to the cost of your kitchen ingredients and inventory, and can be calculated easily as well.

The cost of goods sold is calculated for a particular time period.

calculating food cost percentage

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Although it may be tempting to calculate whether each item on your menu is profitable or not, you need to prioritize calculating to check whether your business as a whole is being successful or not.

The average food cost percentage in most restaurants and cafes is around 30%.Let’s now calculate the food cost in yoru restaurant following these simple steps:

  1. Check your weekly inventory and make a list of ingredients.
  2. Add up the total value of all the items in your inventory. You could do this using an inventory software so it is easy to keep track.
  3. Keep track of all the purchases you made at the beginning and even throughout the week.
  4. At the end of every shift, add up your food sales. If you are using a software for this, it will add it up automatically. At the end of the week, calculate the total food sales by summing up food sales for each shift.
  5. Use the following formula to calculate food cost for each week:

Food Cost Percentage = Total Inventory / Total Food Sales

Calculating Ideal Food Cost Percentage

Calculating your total food cost percentage with an inventory system is just the first step. In order to have a more accurate picture of how your restaurant is doing financially, you need to have something to compare this number to.

That’s where ideal food cost comes into place. Your ideal food cost would be the cost you pay if there were no wastage of food or other resources in your restaurant. Although this number is not practical, staying as close as you can to this number will help you achieve a healthy financial situation for your restaurant.

ideal food cost percentage

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To calculate your ideal food cost, you need to first calculate your food cost per serving or per plate:

Food Cost Per Plate or Per Menu Item = Food Cost of ingredients in The Menu item X Items Sold Per Week

Total Sales Per Menu Item = Sales Price of Each DIsh X Items Sold Per Week

Ideal Food Cost Percentage = Food Cost Per Menu Item / Total Sales Per Menu Item

You will most often notice that there will be a difference of around 5% or more between the actual food cost percentage and the ideal food cost percentage. This could be due to various reasons such as food wastage, spoilage, human error in calculating recipe proportions or plate portion sizes, etc.

Keep improving your processes so that the difference between your ideal and actual food cost percentages become minimal or till your actual food costs start becoming less than your ideal food cost.

7 Tips To Help You Optimize Your Food Cost

  • Periodically increase the prices of your menu items by a small amount.
  • Figure out which are the best selling items on your menu and which are not doing well. Then update your menu accordingly.
  • Include in your menu dishes with ingredients that are cheaper to buy in bulk.
  • Design your menu card strategically and promote the items you want to sell more on your menu.
  • Buy your ingredients and inventory at the best wholesale markets for the best prices.
  • Keep experimenting with portion sizes depending on how much your customers are wasting on their plates.
  • Include seasonal items in your menu that can be ordered only during particular seasons. This way you don’t have to sell those items throughout the year when ingredient costs are higher.
  • Use an inventory system to make calculations and tracking easy for your restaurant.

Calculating food cost percentage for your restaurant is very crucial because it directly affects your profits. The process need not be tedious or confusing if you stick to the simple formulae we have shown you in this post.

Using relevant restaurant kitchen software and calculators can also immensely improve your calculations and give you a more realistic and practical idea of how much you should be selling each item on your menu.

This way you can cut down on unnecessary costs incurred by your restaurant and maximize your profits.

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