Calculating Food Cost Percentage: A Practical Guide for Restaurant Owners

Managing food costs effectively is a critical aspect of running a profitable restaurant. Accurately calculating your food cost percentage ensures that your business remains financially viable while maintaining quality and consistency in your offerings. Here, we break down the process into actionable steps, focusing on the importance of inventory management and consistency.

Understanding the Formula

The food cost percentage formula is straightforward:

[(Beginning Inventory + Purchases - Ending Inventory) / Food Sales] x 100

This calculation gives you the cost of goods sold (COGS) as a percentage of your food sales. While the formula might seem daunting at first, mastering it can provide invaluable insights into your restaurant's financial health.

Step 1: Take Accurate Inventory Counts

Initial Physical Count

Begin by performing a thorough physical count of all inventory in your storage areas, including walk-ins and pantries. This count represents your beginning inventory. Let's say the total value is $5,000.

Ending Inventory

At the end of your inventory period (typically one week), conduct another physical count. Perform this after your busiest period-usually Sunday night-when inventory levels are lowest. Accuracy is essential; avoid overlapping counts with incoming deliveries.

Step 2: Record Purchases

Track all purchases made during the inventory period. Suppliers may deliver multiple times a week, so maintain detailed records. For instance, if you receive $3,200 in food deliveries, ensure these numbers are accurately reflected in your tracking system or spreadsheet.

Step 3: Calculate Usage

Usage represents the total value of goods consumed during the week. This includes:

• Items sold at full price.
• Discounts for staff meals.
• Wastage, spoilage, or theft.
• Comps or voided items.

Formula: Beginning Inventory ($5,000) + Purchases ($3,200) - Ending Inventory ($4,550) = Usage ($3,650)

Step 4: Determine Sales

Extract food sales data from your Point of Sale (POS) system, ensuring you include only food sales-not beverages or retail items. For example, if food sales for the week total $11,750, this is the figure you'll use in the formula.

Step 5: Calculate Food Cost Percentage

Plugging the values into the formula:

[(3,650 / 11,750) x 100 = 31%]

A 31% food cost percentage is generally considered healthy, though benchmarks may vary by cuisine and restaurant type.

Importance of Consistency

To establish a reliable baseline, perform this calculation weekly for at least four consecutive weeks. Consistency is key to identifying trends and maintaining control over your food costs. If your percentages fluctuate significantly-30%, 34%, 29%, 31%-investigate the causes, such as waste, theft, or pricing discrepancies.

Once you achieve steady results (e.g., consistently around 31%), you can shift to monthly counts. However, skipping weekly inventories prematurely can lead to costly oversights. For example, a food cost creeping up to 35% over a month could result in substantial losses.

Additional Tips for Success

• Timing: Conduct inventories at the same time each week, preferably when inventory levels are lowest.
• Avoid Distractions: Ensure no deliveries are arriving during your count to maintain accuracy.
• Leverage Technology: Use spreadsheet templates or inventory management software to streamline calculations.

Beyond Food: Applying the Same Principles to Beverages

The same formula and process apply to beverage inventory. Separating food and beverage costs ensures more precise calculations and better overall cost control.

The Long-Term Payoff

While the process requires effort upfront, the insights gained are invaluable. Regular inventory tracking and food cost calculations empower you to identify inefficiencies, reduce waste, and optimize profitability. Over time, this discipline becomes second nature, contributing to the sustained success of your restaurant.

Roger Beaudoin is the owner of Restaurant Rockstars, which specializes in profit maximizing systems for restaurants. His flagship product RESTAURANT ROCKSTARS ACADEMY is an online restaurant management and server training program proven to increase sales and elevate guest service. To learn more about the sales & training techniques Roger used to ring over a $1 million in just 4 months at his seasonal restaurant visit the site.