06 Jul 22 / Blog

How to Calculate Food Cost Percentage and use it to your Advantage

Pricing dishes for your menus is a critical factor in determining whether or not you run a profitable restaurant.

Understanding food cost percentage is vital for optimising your profit levels. Using food cost percentage to your advantage will help you with menu prices, inventory control, and data-driven decision-making. Nailing your ideal food cost percentage will help maximise profits.

Here we are going to delve into food cost percentage and show you what it is and how to calculate it. We’re also going to give you recommendations on how to lower the food cost in your business and provide you with a solution that may just take your restaurant to the next level.

After reading this you should be able to set an ideal food cost percentage for the dishes in your restaurant and achieve greater total food sales.

Woman checking her till slip when shopping

Food Cost Percentage Formulas Explained

Food cost percentage is the ratio of a restaurant’s cost of ingredients, compared to the sales that a restaurant accumulates when the food inventory is sold as menu items.

Food cost percentage can be described as the percentage of food sales, that is attributed to the cost of ingredients in a restaurant business. In the restaurant business industry, food costs are almost always referred to as food cost percentages.

To calculate food cost percentage, you take the amount of money spent on food inventory in a given period of time and divide it by the revenue generated during that period of time. This figure is then multiplied by 100 to get the food cost percentage. It is important to note that money spent on food inventory is otherwise known as the cost of goods sold.

basic food cost percentage calculation

The Ideal Food Cost Percentage in a Restaurant

Food cost as a percentage of revenue is usually between 28% and 35%. Aiming to keep food costs as low as possible, while keeping a high level of quality is standard practice for restaurants.

There is no ‘ideal food cost percentage’ that your restaurant should aim for. You should however aim to keep it at a level that allows you to successfully hit your desired revenue and profit margins. Food cost percentage will vary from restaurant to restaurant depending on the restaurant’s operating and overhead expenses.

Consider the Food Cost Percentage in Menu Pricing

Food cost is the percentage of an item’s menu price spent to acquire and prepare that item. As we already know, most restaurants operate with a food cost percentage between 28% and 35%.

It is important to keep food cost percentage in mind when creating menu prices as you want to make sure that your dishes are hitting their targeted gross profit margin. It’s common for restaurant owners to price their menu items based on the cost of goods involved.

For example, if your ideal food cost percentage is 30% and it costs you €5 to acquire and prepare ingredients for a burger and chips. You can work out what you should price it at by using the following equation:

Price = Food costs of item / ideal food cost percentage.

In this case, we can divide €5 by 30% to get €16.67, meaning €16.67 is what you should sell the burger and chips for in order to achieve your desired 30% food cost percentage.

restaurant food costs graphic

Tips to Improve Food Costing

Here are some useful recommendations, other than simply raising prices, on how to lower food costs.

Tip #1: Look for Better Vendors with Better Prices

Every few months or so, restaurant operators should assess whether they can get the same quality ingredients at a lower cost from another vendor. It’s also important to carry out supplier reviews every now and again based on their performance.

With the ongoing inflation, the restaurant industry has experienced quite dramatic price increases on most products over the past year.

Procure Wizard helps you tackle inflation in restaurants by putting you in control of price increases. All price changes from your dedicated suppliers require approval by you, the user. Procure Wizard will highlight where savings can be made within your nominated supplier product listings. Users can then make changes to protect their bottom line.

The system gives you full visibility over your expenditure and has been proven to cut costs for customers, increasing gross profit by 3 to 5%.

Tip #2: Rethink the Portion Sizes

A very simple and straightforward way to reduce food costs is to reduce the portion size. For example, you could serve a 6-ounce burger instead of an 8-ounce burger to reduce the food cost percentage of a particular dish.

Tip #3: Better Kitchen Practices

Implementing and encouraging better kitchen practices will help reduce the food cost in your business. For example, having a strategy in place for how to utilize food inventory that is near its expiration date.

Ensuring waste is reduced at the preparation stage and using as many parts of an ingredient as possible on the menu will help reduce food waste in the early stages. Abolishing garnishes, monitoring portion sizes and offering doggy bags to diners are also useful ways to make food waste an issue of the past.

Tip #4: Track Inventory to Reduce Waste

There are multiple waste disposal methods in the food industry but the use of them should be a last resort. Better kitchen waste management and instilling better food production methods in the hospitality industry is where operators need to start in the battle against food waste.

Implementing a system that tracks inventory will help you reduce waste. A system like Procure Wizard will not only help you track every piece of inventory, but will also help you analyze where the waste is coming from.

Tip #5: Highlight Menu Items with Better Food Cost Percentages

Restaurant owners can reduce overall food costs by highlighting menu items with a lower food cost percentage. This can be done through advertising certain dishes or using tactics such as ‘special of the day’. This will help lower the average food cost percentage of the business.

graphic of 100 euro note over a restaurant

How Access Hospitality Can Help You Save More

Access Procure Wizard is a purchase-to-pay software system that empowers your team with a full kitchen management system that gives them full visibility over menus, dishes, stock, nutritional and allergen information. The system allows operators to gain control over their food costs, reduce waste, and save time on admin tasks.

As we already know, Procure Wizard helps tackle inflation, but it also streamlines your entire procurement process. These are some of the benefits that users of Procure Wizard see after implementing the system:

  • Increased GP of 3-5%.
  • Costs were cut by 10%.
  • 100% paperless from an invoicing and accounts perspective.
  • Countless hours of admin time saved.
  • Full visibility over your expenditure.
  • +5% invoice to credit ratio.

FAQs

How do you determine food costs in a restaurant?

You determine food cost in a restaurant by calculating how much was spent on food inventory.
Food cost percentage can be determined using the following formula: (Food costs € / Food sales €) x 100.
Food cost percentages are a key concept in running a profitable restaurant.

What should food and labour costs be in a restaurant?

Food costs in profitable restaurants are usually between 28% and 35% of total revenue. Labour costs are usually around 30%. Both of these figures will vary across different businesses and there is no ideal food cost or labour cost percentage that suits every type of business. These are guides that restaurants should aim for based on sector averages.

What is the average food markup in restaurants?

According to Fundingcircle, the average restaurant markup for a food’s price is 300 percent, or 3 times its wholesale cost. In restaurants, alcoholic drinks have the highest markups.