Restaurant Food Cost: How To Calculate It (With Examples)

You've finally taken the plunge and decided to open your own restaurant. Congratulations!

But now that the excitement of becoming a restaurateur has worn off, it's time to get down to business. You may be wondering how much does it cost to open a restaurant and how much should you charge for your food?

Figuring out a restaurant's food cost can seem daunting, but it's actually not that complicated. So, we're giving you the 411 on everything you need to know about calculating food costs so you can keep your restaurant in the black.

Let's get started.

Costs associated with opening a restaurant

Before we dive into food costs, let's go over some of the other costs associated with opening a restaurant.

In addition to the cost of food, you'll need to factor in:

• Rent or mortgage payments: This will be your biggest overhead expense and will vary depending on factors like size, location, etc.

• Insurance: The cost of restaurant insurance can differ based on the type of coverage you get and whether you're insuring a brick-and-mortar or food truck.

• Permits: The restaurant licenses and permits cost will vary depending on your province or city and state but can be anywhere between $25 and $7,000 [1].

• Labor cost for restaurant: Wages for servers, cooks, dishwashers, and other staff members.

• Everyday expenses: expenses for a restaurant include things like paper towels, to-go boxes, and other disposable items. Essentially your restaurant prime costs.

• Franchise fees: If you're opening a franchise restaurant, you'll need to pay initial and ongoing fees as part of your restaurant franchise costs.

• Variables: variable costs for a restaurant are things like utilities, which can go up or down depending on the season such as gas and electric heating in the winter.

We've got some brilliant resources that go into more detail on each of these items, so feel free to check them out.

What is restaurant food cost?

Food cost (also known as food cost percentage) is the ratio of a restaurant's cost of ingredients to the revenue those ingredients generate when each menu item is sold. Essentially, you're looking at how much it costs you to make a dish versus how much revenue that dish brings in.

However, some restaurants like to take this even further. Instead of just looking at the cost of ingredients, they also factor in the cost of other supplies like paper goods, utensils, and even things like electricity and water.

For example, let's say that a restaurant spends $1,000 on food in one month and generates $5,000 in sales from food during that same time period.

The food cost percentage would be 20% ($1,000 ÷ $5,000).

Things to do before menu pricing

Now that you know what food cost is, it's time to calculate food cost percentage numbers for your menu. But before you get started, there are a few things you need to do first.

Know your recipes like the back of your hand:

The first step in calculating food cost is to have a clear understanding of your recipes. After all, you can't calculate the cost of a dish if you don't know how much of each ingredient is needed to make it.

So, take some time to write out your recipes in detail. For each dish, list every ingredient needed and the specific quantity (e.g., 1 cup flour, 2 tablespoons sugar, etc.)

Determine how much each dish costs to make:

Once you have your recipes down pat, it's time to start pricing out each ingredient. To do this, you can either visit the store and price out each ingredient individually or research the cost of each ingredient online.

If you choose to price out your ingredients in-store, we recommend keeping a running tally on your phone or a small notebook. That way, you can easily add up the cost of each dish as you go.

Choose an accounting period:

The next step is to decide on an accounting period. This is simply the length of time that you'll use to calculate food cost percentage figures.

For most restaurants, an accounting period is typically one month. But if you're just getting started, you may want to calculate your food cost percentage on a weekly basis. Doing this will give you a better idea of where your money is going and how much each dish is costing you to make.

Set food cost targets:

Now that you know your recipes, the cost of each ingredient, and your accounting period, it's time to set some food cost targets.

Your food cost target is the percentage of sales you want to spend on food. For example, if you want to spend no more than 30% of your sales on food, your food cost target would be 30%

Keep in mind that a restaurant's average food cost percentage is between 28% and 35%. So, if your food cost percentage is above 35%, you may want to reassess your menu pricing.

On the other hand, if your food cost percentage is below 28%, you may be able to increase your prices without turning customers away.

Gather your sales data:

The final step in calculating food costs is to gather your sales data.

For this, you'll need to pull reports from your restaurant POS system (if you have one) or your sales records (if you don't use a POS system). These reports will show you how much revenue your restaurant generated during your chosen accounting period

Once you have this information, you'll be able to calculate your food cost percentage and see where you stand in relation to your food cost targets.

What is food cost per serving?

In addition to knowing your food cost percentage, it's also helpful to know your food cost per serving.

Food cost per serving is simply the cost of all the ingredients needed to make one serving of a dish. For example, let's say you want to determine the theoretical food cost per serving of your restaurant's signature dish, Spaghetti Bolognese. This dish typically consists of 1 pound of ground beef, 1 clove of garlic, 1 can of crushed tomatoes, 1 tablespoon of olive oil, 1 teaspoon of salt, and 1 pound of spaghetti noodles.

You buy all of your ingredients in bulk and pay $19 for 5 pounds of ground beef, $0.50 for a head of garlic, $2.50 for a can of crushed tomatoes, $4 for a bottle of olive oil, and $1 for a bag of salt and $2 for spaghetti noodles.

To calculate the food cost per serving, you would simply add the cost of all the ingredients needed to make one serving of the dish. In this case, that would be:

• $1.90 (ground beef) + $0.01 (garlic) + $0.50 (crushed tomatoes) + $0.04 (olive oil) + $0.01 (salt) + $0.19 (spaghetti noodles) = $2.65.

Each serving of Spaghetti Bolognese costs your restaurant $2.65 to make.

What is food cost percentage?

Now that you know how to calculate food cost per serving, you can begin to calculate your food cost percentage.

Your food cost percentage is the percentage of sales you spend on food. To calculate it, you'll need to know two things: your total food cost and your total sales.

To find your total food cost, simply add up the cost of all the ingredients used to make all the dishes served during your chosen accounting period.

For example, let's say that during one month, your restaurant sold 100 servings of Spaghetti Bolognese, 50 servings of Chicken Parmesan, and 25 servings of Vegetable Lasagna. To find your total food cost, you would need to add up the cost of all the ingredients used to make each dish. In this case, that would be:

$265 (Spaghetti Bolognese) + $130 (Chicken Parmesan) + $65 (Vegetable Lasagna) = $460

To find your total sales, you would need to add up all the revenue generated by your restaurant during that same month. Let's say that your restaurant's total sales for the month were $3,000.

To calculate your food cost percentage, you would simply divide your total food cost by your total sales. In this case, that would be:

$460/$3,000 = 0.153

This means that your actual food cost percentage for the month was 15.3%.

What is a good food cost percentage?

Now that you know how to calculate food cost percentage, you may wonder what a good food cost percentage is. According to Chron, food costs (including beverages) for the restaurant industry run typically from the 28% to 35% range, depending upon the restaurant style and the mix of sales [2].

If you're a fast food or casual dining restaurant, your restaurant's food cost percentage will likely be on the lower end of that range. And if you're a fine dining restaurant, your ideal food cost percentage will likely be on the higher end of that range.

Of course, these are just general guidelines. Ultimately, it's up to you to decide what a good food cost percentage is for your restaurant.

Calculating your ideal food cost percentage

As a restaurant business owner, you need to find the ideal food cost percentage for your establishment. This number will be different for every restaurant, depending on the style of the restaurant, the mix of sales, and other factors.

To calculate your ideal food cost percentage, you'll need to know two things:

1. your target food cost percentage

2. your total sales.

Your target food cost percentage is the percentage of sales you want to spend on food. To find your target food cost percentage, you can use the following formula:

Target Food Cost Percentage = Total Food Costs/Total Sales

For example, let's say that your restaurant's total food cost for the month was $4,000 and your total sales for the month were $20,000. To find your target food cost percentage, you would divide your total food cost by your total sales. In this case, that would be:

4,000/20,000 = 0.2

This means that your target food cost percentage for the month was 20%.

To find your ideal food cost percentage, you would simply multiply your target food cost percentage by your total sales. In this case, that would be:

0.2 x 20,000 = 4,000

This means that your ideal food costs for the month was $4,000.

How to calculate food cost percentage

Let's get on to calculating your food cost percentage. To do this, there are a few things you'll need to know. This includes your:

• Beginning inventory value: In layman's terms, this is the food costs of all the items you had on hand at the beginning of your chosen accounting period. For example, let's say you're calculating your food cost percentage for January. Your beginning inventory value would be the cost of all the food you had on hand on January 1st.

• Purchases: These are the food costs of everything purchased throughout your chosen accounting period. For example, if you're calculating your food cost percentage for the same period, your purchases would include the cost of all the food you bought between January 1st and January 31st.

• Ending inventory: These are the food costs of everything you had on hand at the end of your chosen accounting period. For example, if you're calculating your food cost percentage for January, your ending inventory would include the cost of all the food you had on hand on January 31st.

• Total food sales: This is the total revenue generated by food sales during your chosen accounting period. In other words, this is the total amount of money customers spent on food during your chosen time frame. For example, if you're calculating your restaurant food cost percentage for January, your total food sales would include all the revenue generated by food sales between January 1st and January 31st.

What is the food cost percentage formula?

The food cost percentage formula is:

(Beginning inventory + purchases - ending inventory) / total food sales.

So, if your beginning inventory is $1,000, your purchases are $2,000, and your ending inventory is $500, that would give you a food cost percentage of (1,000+2,000-500)/(2000) = 0.75 or 75%.

This means that for every dollar you generate in sales, 75 cents goes towards the cost of food.

Here are some more examples of food cost percentages:

• If your beginning inventory is $2,000, your purchases are $4,000, and your ending inventory is $1,000, that would give you a food cost percentage of (2,000+4,000-1,000)/(4,000) = 0.5 or 50%.

• If your beginning inventory is $0, your purchases are $3,000, and your ending inventory is $2,000, that would give you a food cost percentage of (0+3,000-2,000)/(3,000) = 0.33 or 33%.

As you can see from these food cost percentages, the higher your beginning inventory is, the lower your food cost percentage will be. This is because you have more food on hand that you haven't paid for yet.

Tips for lowering your food cost percentage

There are a number of things you can do to lower your restaurant food cost percentage. Some tips include:

• Purchasing in bulk: Buying in bulk is one of the easiest ways to save money on food costs. You'll typically get a discounted price when you purchase larger quantities of ingredients. Just be sure to have enough storage space to accommodate your bulk purchases.

• Negotiating with suppliers: Don't be afraid to negotiate with your suppliers. If you're not happy with how much their food costs, let them know and try to negotiate a better deal.

• Tracking waste: Food waste is one of the biggest contributors to high food costs. Keep track of how much food you're throwing away and find ways to reduce waste.

• Monitoring portion sizes: Another way to reduce waste is to monitor portion sizes. Making sure your employees are only serving the amount of food that's necessary will definitely help reduce food costs.

Final thoughts

So there you have it. These are just a few things to remember regarding restaurant food costs.

By following the tips above, you can help ensure that your food cost percentage is as low as possible.