How to Calculate Your Food Cost Percentage

restaurant owner

The motivation to make food for others is driven by passion. But the truth is that even well-loved and critically acclaimed restaurants can be forced to close if their owners aren’t able to keep costs down.

One of the best ways to rein in your restaurant’s budget is to ensure that you’re keeping food costs down. To do that, you need to know how to calculate your food cost percentage.

Why should you calculate your food cost percentage?

Just how much of the average restaurant budget goes toward food costs? Full-service restaurants spend roughly 25% to 30% of a meal’s display price on its constituent ingredients. This can be even higher for premium ingredients. The remaining 65% to 75% of ‘profit’ goes towards everything from equipment and utilities to wages and storage. With costs so tight, calculating and monitoring your food cost percentage is vital to the security of your business.

The basic food cost formula

If you want to know how to calculate the food cost percentage at your restaurant, just follow this formula:

basic food cost formula

Once you’ve calculated your food cost percentage (or tracked it over several months), you’ll be in a better position to develop strategies that help save on food and increase margins.

How to save on food costs at your restaurant

Armed with detailed business analytics (and your trusty calculator), you can get a good idea of your food cost percentage and make the changes necessary to improve your bottom line. Here’s how to get started:

  • Evaluate every item on the menu. Using the food cost formula above, determine the cost of each menu item by calculating the price of each ingredient. Ask yourself whether your menu prices are comparable to the true cost of the item or whether you need to make some adjustments to both the ingredients and the price.

  • Don’t over-charge. Resist the temptation to keep things on the menu if their mark-up makes them unaffordable. If your calamari starter needs to be sold at £14 to break even, you’re probably going to get priced out of the market. It’s a delicate balancing act between what you need to charge and what customers are willing to pay for.

  • Remove low-performing items. An integrated point-of-sale system can provide insights into what’s selling and what’s not. Consider removing items that don’t sell well and create a strategy where you continually test the performance of your dishes.

  • Choose a cheaper supplier. Sometimes, cutting costs is as simple as refreshing your menu with items that are better value for money. While you’ve been using the same supplier, new companies may have joined the market who can provide you with cheaper produce.

  • Keep your menu seasonal. Not only are in-season fruits, vegetables and meats tastier, they’re also cheaper. Don’t pre-plan your menus too far in advance and rather wait to see what bargains each season brings. Advertising new seasonal menus and dishes is also a great way to bring back customers who haven’t visited in a while.

Staffing choices won’t change food costs, but they can make a big difference to your overall bottom line. Using an employee management system, you can determine who your best performing servers are and increase their time on the staff rota. By the same token, staff who don’t quite seem to be performing as well can be engaged in extra training and mentorship.

The right staffing combined with smart food cost choices translates into a significant financial boost for your restaurant.

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