Understanding how to calculate a food cost for a recipe is essential for every restaurant owner. If you are in the food service business, you already know how important it is to keep your costs under control. Without knowing how much it costs you to prepare every dish you won't be able to cost out your menu properly. Therefore, if you are thinking about how to make a restaurant menu that maximises profit, make sure that calculating the food cost for each item and choosing the right menu pricing method are on your checklist for this task.
What is the food cost for a recipe?
Food cost for a recipe, % (also referred to as food cost per serving, food cost per plate, food cost per dish, or food cost per menu item) is the ratio of the cost of ingredients you use to prepare a dish and the revenue you receive from selling the dish multiplied by 100.
Proactive management of the food cost for a recipe helps restaurant operators better understand the profitability of their menu items. Using the data on food cost fluctuations, restaurant managers can:
Spot malpractices that undermine their business profitability.
Optimize their purchases and engineer their menu for profit.
Release the cash sitting on their shelves and save up to $50 000 per year.
It all starts from the decision to monitor the food cost for each recipe on a regular basis, make weekly and monthly analysis, and be 100% aware of the amount of profit or loss each menu item brings.
Is knowing your food cost per menu item important?
Knowing your food cost per menu item is like keeping your finger on the pulse of your restaurant’s profitability. When it comes to restaurant metrics, people usually want to know their:
Target numbers, to know what they should strive to reach to meet their business goals.
The industry average, to figure out how healthy their business is compared to their competition.
Actual numbers, to stay aware of what is going on in their business at the moment and if they are making any progress compared to the previous periods.
According to the restaurant industry statistics, a profitable restaurant on average has a 28-35% overall food cost. However, knowing the industry average food cost may hardly help you to improve your business performance because the healthy food cost percentage varies greatly depending on the restaurant concept.
Moreover, the food cost percentage varies for every dish. You’ll never have a menu with all dishes meeting the same 28-35% of food cost. Instead, in order to level up your overall restaurant food cost, you’ll have to balance high and low food cost items on your menu taking into account their sales volumes.
What’s the difference between the ideal and actual food cost per serving?
To know and compare your target and actual numbers, you should calculate two metrics: ideal food cost per serving and actual food cost per serving. Here is the formula for calculating your ideal food cost percentage:
Ideal Food Cost Percentage (per Serving) = Recipe Cost ÷ Recipe Sale Price
Where you calculate Recipe Cost as the total cost of ingredients in a plate and take Recipe Sale Price, which is the price a customer pays for a plate.
When you develop recipes and design your menu you calculate this number for every dish. Your ideal food cost per serving would have existed in reality if all the products used in your restaurant were sold and served to customers. But in the real world, far not all food makes it to the plate. Unfortunately, some products get spoiled, wasted, or stolen; and all this adds up to your actual food cost.
Actual Food Cost per Serving = Ideal Food Cost per Serving - Inventory Lost per Serving x 100
To understand the real state of things in your restaurant, you can’t just rely on your ideal food cost because it doesn’t take into account the beginning and ending inventory numbers for the current period. Instead, you’ll have to calculate your actual food cost per dish every week and figure out how much it deviates from the ideal one and by what reason.
You should strive to make your actual food cost match your ideal food cost. However, your actual food cost percentage in most cases will be about 5% higher than your ideal food cost percentage due to waste, theft, spoilage, etc.
Let's summarise how to calculate food cost for a recipe
Take the actual purchasing price for every ingredient in the recipe, brake the total price of each ingredient by its amount in grams or other units required to cook one plate of this dish, and sum up those ingredient costs to get the total cost per plate.
How to calculate food cost for a recipe using POS software?
To find actual numbers for your restaurant, you should prioritize your inventory management. Start taking full and accurate food inventory each week. This will allow you to know the numbers for your beginning and ending inventory for an optimal period of time and calculate your actual food cost for every recipe regularly. By doing your inventory weekly, you’ll be able to stay on top of your food usage and associated costs, identify problems quickly, and get them resolved timely.
You can use some features available in your POS system as restaurant food costing software. Here are the steps you should take every week to be able to manage your actual food cost proactively.
Schedule a regular day/time for taking inventory and use the numbers you get as the ending inventory for the previous period and the beginning inventory for the next period.
Track the purchases that you make within the week and enter the items in the POS system right after the products are delivered.
Use Poster POS to print out the inventory spreadsheet with the list of items you have in stock. Check the inventory you have on your shelves against the list and enter the actual numbers to the system.
Let Poster POS calculate automatically the product usage and show you the difference between the theoretical quantities you have in the system and the actual quantities you have in stock.
If actual usage is greater than the theoretical usage, investigate these cases immediately to exclude errors from your data.
After you make sure your data is correct, look at the cost of ingredients used and the weekly amount sold per recipe and calculate the food cost for each item on your menu.
Actual Food Cost (%) = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales x 100
Although doing inventory weekly is optimal, we suggest you do daily inventory for your top 10-15 products that make up the bulk of your food cost. Keep an eye on those high-cost or/and high-usage items and you’ll avoid 90% of problems with inventory counts.
How to manage purchases to lower food cost per dish?
We suggest you stay aware of the price you currently pay for every ingredient you buy. It’s important to notice when prices change sharply under the influence of market trends or seasonality. Make sure that every time your employees add products in your restaurant POS system, they pay attention to the previous purchase price and report fluctuations.
Managers who use Poster POS see the last price entered for every product when they accept deliveries and add them to the system. This makes it easy to notice the purchase price fluctuations and find ways to optimize recipe costs timely.
There may be some purchase price range for every product that allows you to stay within your desired portion cost. But every time the price goes up, you should take measures to keep the recipe cost within the desirable limit. For example, you can revamp your menu timely so that your recipes include more affordable ingredient alternatives, like less expensive cuts of meat or in-season fruits.
Some dishes on your menu may include ingredients that tend to vary in quality from one delivery to another, like oranges or potatoes. Their usage increases dramatically if the quality is low. You should keep an eye on the food cost for those items in order to spot an unreliable supplier and improper quality check when the products arrive at your restaurant.
You can ensure the consistency of the products delivered from suppliers by making detailed specs for checking the quality of products and handing them to the employees who accept products. You can also ease their work by introducing a policy that defines proper times for deliveries. Make sure none of your suppliers deliver during the rush hours when your employees are swamped with work.
How consistent portioning helps to improve your food cost per plate?
There can be a million reasons for high food costs per plate in your restaurant. To find them out, you can start by checking the most common issues and establish control points for your food cost one by one. We suggest you pay attention to your portion sizes, freebies and garnishing from the start.
Consistent portioning is important for keeping your business profitable. The slightest over-portioning of expensive products will drive the cost up immediately. To make menu items consistent across shifts:
Define the standard portion size and set your selling price.
In specifications, break dishes down on ingredients taking into account the portioning tools used at prep stations: one cup, two tablespoons, three sticks, etc.
Equip the prep stations with scales, scoops, ladles, measuring cups and serving spoons and train your staff to always use the correct utensils, dishes, measuring and slicing equipment.
Control the number of freebies, like toasts, breadcrumbs, or sauce, that you serve with the dishes.
Reconsider your approach to garnishing every season to avoid overspending on the small decorative elements that your chef adds to dishes dish to make them look more appealing.
Assign a responsible for watching portion sizes and plating for every item coming out of the kitchen.
Ask waiters or bussers to measure and record what comes back from the table and report the dishes for which the portions might be too large.
In bars, beautiful drinkware helps use fewer items for decorating drinks which reduces both the cost of the drink and the prep time.
Most cooks memorize the proper method for cooking of every menu item. To help them out you can print recipe quick-reference charts and place them at each station. If you use a kitchen display system that allows your employees to look through dish specifications, it will make the task even simpler. For example, using thetogether with Poster POS you’ll have the dish specifications added to Poster accessible from the KDS screen or tablet.
A habit of pulling one random item off the line each shift and weighing the key ingredients may help you motivate your employees to control portion sizes.
Portion audit will help you avoid over-portioning and losing money by giving more food than the price is paying for and never cheat a customer by accidentally giving portions that are smaller than in specification.
How to lower your food cost per dish?
Every time you cost a recipe and see that it potentially can be the reason you lose profit, you should make a decision on how to cope with it. Depending on the cause of the food cost increase you may do the following:
Reduce the amount of the key ingredient in the dish, if its price increases temporarily and you expect it to come back down soon.
Substitute an ingredient for lower-cost ingredients for the season.
Reprice the dish if you expect the costs remain high for a long period.
Train staff to sell more of the menu items that have lower costs and higher profit margins.
Reconsider the preparation process if the menu item often gets overcooked or spoiled by some other reasons.
Remove a menu item off the menu if none of these changes work.
If you own a pizzeria and want to find out what pizza recipes bring you profit, use the sales data from your system. For example Poster POS users can look at ABC analysis report and find out what are their stars and dogs at a glance.
Having high food cost dishes on the menu is unavoidable. Moreover, a higher food cost for a dish can mean a higher profit at the same time. This is because high-cost dishes sold at high prices may bring in more gross profit dollars and a larger profit. However, you should look at the real numbers and balance high and low food cost dishes on your menu to maximize your profit margin.