Calculating Food Cost
One of the main things you should consider before opening a restaurant or business that will serve food is to calculate the food cost. As you price your menu items, it is important to think about the quantity of raw materials (food) you will have to purchase to sell to your customers.
Food costs and will be a key driver in the overall profitability of your business. A simple example would be if you purchased the raw materials to make a ham and cheese sandwich: [Bread $2.30; Cheese $1.50; Ham $ 3.20] the total cost of your raw materials is $7.00. Now imagine that the cost of those ingredients could make 10 sandwiches. That would me the cost per sandwich is $0.70 ($ cost/ quantity). Lowering the cost of your food can greatly increase your margin of profitability and leave more money in your pocket at the end of the day.
While food costs are important and the prices you set on your menu can also determine your profit margin that does not mean that you overprice your dishes and drinks; as it is not the responsibility of one single client to cover all your costs. On the other hand, pricing them too low just to attract customer will ensure that you are out of business in no time. Which is why, apart from choosing a high traffic location, a beautiful decor, hiring a classic chef, and offering great services will not be enough if you are charging too much or too little for your food.
Keep in mind that the cost of your food is a combination of the actual cost of food on the plate, and your overhead cost. If you miscalculate the price you should be charging, it could easily cost you significant amounts of money and slow your progress and an entrepreneur. Here we have a few steps you can follow, which will allow you to calculate your food cost.
Actual Food Cost Equation:
● Ingredients - it does not matter if it's a single grain of rice, or a chunk of chicken; you have to weigh in each ingredient used in the dish. Think of everything from cooking oil, to the gas used, including garnishing and seasoning. You will need to portion control your meals to ensure each dish is of the same size, and will cost you nothing less and nothing more.
● Cost per Ingredient - for instance, a tomato costs 25 cents each, depending on your areas it might be more or less. Now, if that one tomato is divided into eight slices, and you use two slices in the dish, then that would mean 6 cents worth of tomatoes in the dish. Simply write 6 cents in front of tomatoes for that dish. Keep going at it, till you reach a point where you have covered all your dishes and each and every ingredient that goes on in making and preparing it. Now, factor in the delivery cost of the food, and other related expenses.
● Total cost - adding the total number will give you the amount it costs for the ingredients alone, and not the cost to prepare it and serve it.
● Percentage - learn how to get the percentage of your food costs, it is simple. For instance, you have priced a dish at $18, and the food costs is $6, it will make your food cost 33%. This will help you determine if you have priced the meal accurately or not.
● The Overhead cost of meals - now it is time to include all the non-food related costs that go into running your restaurant. Start by calculating your daily overhead cost, and divide the number by potential customers you assume will come in each day. For instance, if your overhead is about $2000 per day, and you serve a little more than 250 customers per day; then you per head of overhead cost if $8.
● Target food cost - to help you determine the target food cost, start by using your overhead costs. For instance, a meal at your restaurant costs $12, and your overhead costs are about $8, then you food costs must be less than $4 just to break-even. If you wish to make a profit, then your need to add $2 per plate. Which will make the total price of the dish $14. If you feel your consumers will not be happy paying $14 per meal, then you need to sit down with your chef and list down ways to cut down the meal preparation costs. Then you need to consider your overhead costs in detail, and cut down on expenses that are pointless.
Ideal Food Cost Calculator:
● Examining - before you open your doors go over your menu prices, and factor in the food cost, and the overhead cost. Then, if you are able to make a profit of at least $2 per plate, go ahead with the menu. The ideal situation would be when a meal that has food cost of $4 is sold for $20. This will allow you to cover the food cost, overhead, and unexpected costs.
● Items and Service - consider if you want to calculate per service, or per item. For instance, if you wish to offer a low cost breakfast for your customers, it will mean your food cost must be less than 20%, since the profit margins will be small. Another example is, that a more expensive lunch or dinner menu will be able to carry food costs around 35%.
● Analyze - it is a good idea to analyze the total sales by items, they will help you determine if your food cost percentage is able to support your business or not. If your math allows you to believe that you are selling items that are mostly low cost, then you should consider raising your prices. Or look at ways to reduce your food cost, or overhead expenses. As this is the only way you will be able to make a profit, otherwise breaking even will not keep you in the business for a long time.
Food Cost Percentage:
These simple tips will help you calculate food costs before you start a business, it will also help you determine a factor of how much investment you will have to make. You can factor in other expenses and see if this is suitable, and will you be able to actually put up enough money to make your restaurant work. Opening a restaurant or a small cafe is not an easy business, which is why each small and large expense should be considered beforehand. As there are a number of important decisions that need to be made before you decide to open shop, calculating potential costs and expenses is a critical aspect in determining if your business will even be able to turn a profit.