Food cost is one of the most important things you have to calculate in your restaurant business. Mostly because it's a part of the most important calculation - restaurant prime cost. If you don't know what restaurant prime cost it, read this post on it.
To learn how to calculate your actual food cost, watch the video, or continue reading below.
Most restaurant owners aren't calculating their food cost properly.
Once you have a budget and have set your target food cost, you have to measure it to make sure your actual food cost is falling in line with what you've budgeted. Most restaurant owners are finding their food cost by dividing their purchases by their sales. That is not your food cost🤷🏻♂️
You see, if you buy a ton of product, but your sales are lower than you forecasted, and you still all have a bunch of food on the shelves and spent all this money, if you take your purchases and divide by sales, you have a falsely high food cost. Then the next week, when you didn't have to order as much food and your sales were higher, if you divide purchases by sales, you get a falsely low food cost. The only way to know your actual food cost, is to follow the proper food cost calculation.
And dah dah dah - it requires inventories.
The correct food cost calculation is:
Beginning inventory plus purchases minus ending inventory gives you use. Use divided by sales is your food cost percentage.
Here are four steps to follow to make sure you have an accurate food cost.
1. Update your prices: Every time a delivery arrives, update the cost of what you bought for each item. That will translate into your recipes and what it costs to make them. Food prices are always rising and your food prices cost is higher. If you don't make those changes, you have a falsely low food cost. If you're doing this, it might seem like you should have money, but it's just not there.
2. Batch recipes: For any item you make in your restaurant - whether it's a side of carrots and celery or salad dressing made from scratch or a signature soup - you must have a batch recipe for your recipe costing cards. If you take something you purchased, put into a pot and made something new from it, that's a batch recipe. It needs to inventoried. If you don't count those items, it looks like it's used, and you have a falsely high food cost.
3. Conduct shelf-to-sheet inventory: You need accurate inventories to get an accurate food cost. You need to set up your inventory system in the way that you have it on the shelves. This makes it more accurate and more efficient. For example, in the reach-in freezer, you have potato wedges in the first position in a case. If you count it by the case, you have to value it by the case. They they are also on another shelf in the freezer in 5-pound bags. Count it by the bag and value it by the bag. If they're also loose by the ounce on the line, you count it by the ounce and value it by the ounce, too. And they're in a batch recipe! Get it? This gives you accurate inventories and no one is doing math in their heads.
4. Weekly inventory: Most restaurant owners don't even do inventory. Then, those who do take inventory monthly. When you can measure weekly and find that your food cost is off by $500, you can do something about it. Maybe Chef can come up with a special that is a high-dollar ring at the register with a low food cost which helps pull that $500 back. Then by the end of the month, you're back on budget and making the money you deserve.
As a reminder, the food cost calculation is:
Beginning Inventory + Purchases - Ending Inventory = Use/Sales
And you must do weekly inventory because it's only good if it's accurate.
If you would like to learn more about the importance of systems and how to run a restaurant, read our free special report, Is Your Food Distributor Screwing You? 5 Things You Can Do Now to Lower Food Cost. Download it here. Be sure to visit my YouTube channel for more helpful restaurant management video tips.
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