I’m going to apologize in advance to the readers who hate math - that’s what this whole article will be. If you’re not mathematically inclined (and I do get that), I highly encourage you to skip to the bottom. There’s a table at the bottom with a super-simple breakdown of this article which should help make things a bit simpler. (Just don’t forget to read the rest - it is actually helpful, I promise.)
Feel free to skip around in this article to find the most useful bits and bobs, as most of this will be practical math rather than our usual advice. This is, while technical, a super important article to peruse, as you’ll learn how to drive revenue efficiently, along with quite a few other bits of helpful knowledge.
Now - what the heck is food cost percentage?
Figuring Out Food Cost
Before we dive into the nitty-gritty of how to find various restaurant statistics and KPIs, it’s important to talk about why it’s so important. So, let’s start there. We’ll get into equations in no time, though, so don’t worry your nerdy little heart.
Why Does Food Cost Matter?
This is a simple question to answer.
Food cost matters because it directly impacts your business.
You wouldn’t ask why the cost of your utilities matters, would you? It’s the same concept - just as your utility bill lets you plan and budget, so too does your food cost. There’s a bit of a misconception in the industry that food costs and how much you spend on food are the same thing. However:
Food cost does not translate to how much you spend on food. Unfortunately, it’s more complicated than that.
While we’ll break into exactly how it’s different shortly, the truth of the matter is simple. Knowing your food costs lets you:
- Adjust menu prices to accommodate more expensive dishes.
- Organize your menu to highlight high-margin items.
- Plan and budget for other projects (i.e., a ghost kitchen expansion, a second location, specials, staff retention, etc.)
With that out of the way, let’s talk about how to find your food cost percentage.
How Do I Find My Restaurant’s Food Cost Percentage?
This may seem quite complicated, but there is a touch of good news. Whether or not you’re good at math doesn’t really matter here. I’m a writer - so if I can understand this, so can you. (I believe in you!)
When figuring out your restaurant’s food cost percentage, you need to know two formulas: the Plate Cost formula and the Period Cost formula. Each is actually quite simple, so let’s just take a peek.
This translates to a simple concept - how much do you spend, per serving, on each dish? Note that this is a jumping-off point for period cost, which is the more useful of the two in terms of long-term planning.
Here are a few terms to know:
- Purchase Price: How much you spend on food.
- Sales Price: How much you charge for food.
The plate cost formula is as follows:
- Purchase Price / Sales Price = Food (plate) cost
- Food/Plate Cost * 100 = Food (Plate) Cost Percentage
Here’s an example:
- My purchase price is $5.
- My sale price is $10.
- $5/$10 = 0.5
- 0.5 * 100 = 50%
- My Food Cost Percentage is 50%.
This leads us to our next equation, period cost.
Before we get too far into things, I need to introduce a concept called Cost of Goods Sold (CoGS). We’ve discussed this before, as it’s absolutely crucial to understanding your business - you can find that discussion here.
The simple explanation of CoGS is that it measures your business’s health. A positive CoGS is good, and a negative CoGS is very bad.
Here are a few terms to know before learning the formula:
- Beginning inventory: This is what you begin the period (month) with that’s leftover from the previous period.
- Purchases: The purchases you made during the specified period (i.e., your current month).
- End inventory: This is what remains at the end of the month. For example, your end inventory in March would be your beginning inventory in April.
Here’s how to find your usage with the CoGS formula:
- Beginning inventory + purchases - final inventory = Inventory Usage
- Inventory usage * 100 = CoGS percentage
And here’s an example for, let’s say… June.
- My beginning inventory in June is $1,000
- My purchases for June are $10,000
- My end inventory in June is $900
- So my food usage formula is as follows:
- $1,000 + $10,000 - $900 = $10,100 in food usage
Period Cost Percentage
Now - to find your period cost, you need to do only one more thing.
Take your food usage and divide it by your period sales. Let’s say you sold $40,000 of food in June. That would look like this:
- Food usage ($10,100) / period sales ($40,000) = .2525 Period Cost
- .25 (rounded) * 100 = 25% Period Cost Percentage
A Handy Table of Equations
That was a lot! If you need to return to this to double-check anything, we have a nice little table with each formula you could need.
A Few Tips Before Wrapping Up
Now, with the math out of the way, I have a few tips to offer before we wrap up.
1. Be as specific as possible.
2. Use technology to make your life easier.
Don’t do this by hand. Use high-quality kitchen management software (so, you know - Cuboh).
3. Watch your business’s analytics carefully to ensure your math is correct.
Analytics are king - trust me here.
This is part of food cost - it tells you what works and what doesn’t.
5. Keep an eye on the Cuboh blog for further tips on how to navigate other challenges in the restaurant industry, market your business, retain staff, and more.
Now - go do some math. It may not be fun, but it’s absolutely crucial to ensuring your restaurant’s long-term success. And seriously - technology is your friend, with constant changes in the industry’s software making things just like this far easier.