Miscalculated food cost percentages and high food costs are among the top 10 reasons why restaurants fail to survive. If you are still calculating your food costs manually, you risk making mistakes that would be difficult to recover from.
In this article, we will talk about
-how to get started with food cost calculation,
-how to manage recipes from your restaurant management system and automate food cost calculation,
-how to optimize food costs.
Source: Freepik
Food cost calculator: How to calculate food cost
Calculating food costs consists of 5 steps:
- Add the list of ingredients for a given recipe,
- Add the cost of each ingredient,
- Add the amount used for each ingredient,
- Add the cost of each ingredient in the amount used,
- Add up the costs for each ingredient.
For now, you only need a pen and paper or a document to get started. Let’s consider a real recipe – avocado salad – to see how everything works:
We need
-avocados,
-cucumber,
-fresh lime juice,
-olive oil,
-fresh herbs (cilantro, parsley or basil).
Now let’s move to costs:
-Two medium avocados will cost $4.
-One large or 2 medium cucumbers will cost $0.1.
-For a fresh lime juice, we will need 1 lime that costs $0.70.
-For 1-2 teaspoon of olive oil, we might add a generic cost of $0.10
So the original food cost for this recipe would be $4.9. Considering your remaining expenses such as rent, utilities, labor, and your profit margins, the menu price for this item would be around $12-14.
It’s not always possible to calculate the ingredient price by an item price (e.g. in case of avocados or lime). For many ingredients, you buy them in kilograms, and need to understand how much each serving costs.
If 1 kg of white rice costs $4, and you use half kg of rice in a recipe, then the cost for this ingredient is $2.
If you buy vegetables or fruits, take the total price and divide by the number of items purchased. And you will understand the price for each item.
Sometimes producers mention not only the net weight but also the serving size on the can/bottle. This is extremely helpful as you will understand what amount to use for a serving and how much it will cost.
For example, say a ketchup costs $1.5. The net weight is 350 grams and the serving size is 15 grams. The cost per ketchup serving size would be $0.06.
As herbs don’t have a serving size and your kitchen scale will hardly weigh it, you can estimate a generic cost for most herbs. For salt and pepper you can estimate a little less, and for rare or expensive herbs, you can increase the generic estimation.
Pro tip: Always try to keep your food costs closer to 28% of the menu price so you don’t lose your profit in case of up to 7% price fluctuations. Even if one ingredient price rose a penny per kg, you don’t have to change your menu price and your profits won’t suffer.
However, ideal and actual food costs aren’t always the same. Calculating the cost per recipe based on ingredients used is the ideal food cost. But you shouldn’t forget that food spoilage is a huge problem for restaurants and some percentage of your inventory might end up being unused.
To calculate the actual food cost, you should this food cost formula
Food Cost = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
If you see that your ideal and actual costs are very close to each other, you can be sure you are actually running a profitable business.
How to automate food cost calculation (Videos included!)
Source: Freepik
EagleOwl allows you to automate your food calculation and get rid of all the mistakes that manual data entry would result in. For example, when the ingredient cost or amount in a given recipe changes, you simply edit the variable and the total recipe costs changes accordingly.
Say your restaurant’s name is Jack’s Corner and you are trying to add a new recipe to your system.
To be able to add this or that ingredient to a recipe, you should first create an SKU for each ingredient.
Click Inventory->, SKU
The system will show the ingredient name, date purchased, number of recipes it’s used, cost, and unit.
For more information, please watch this quick video
Once you have your ingredients and added to the system, you can start creating recipes and the recipe costs should be calculated automatically.
Click Recipe->, Add recipe
The system will allow you to fill in all the details related to your recipe:
- Name,
- Classification (Desserts, Salads, etc),
- Quantity (portion, tsp, tbsp, etc),
- Preparation method,
- Menu description,
- and, of course, recipe ingredients.
If you choose, for example, 100 grams of potato and 10 grams of salt for a potato salad, the system will automatically calculate the cost for this amount.
Aftering saving the recipe, you will see it in your list of recipes. The system will show the date updated, the number of ingredients in that recipe, and the cost price. If one day you change the potato price, the recipe costs containing potato will be updated automatically.
For more information, please watch this quick video
How to optimize food cost: 5 working tips for your restaurant
Source: Freepik
You already know how to calculate the original cost of the recipe, what’s the difference between ideal and actual food cost, and how to automate food cost calculation with a restaurant management system like EagleOwl.
Now let’s explore 5 ways on how to reduce your food costs without changing the recipe taste and ensuring your guests will come back.
- Scale back on the most expensive ingredients. Expensive ingredients such as nuts, cheese, meat, tropical fruits make your food cost go up. Try to use smaller amounts of these ingredients in your recipes and your food costs will significantly decrease. However, make sure the recipe flavor isn’t significantly impacted.
- Find ingredients that give your food a big flavor kick but cost only a few pennies. It’s not a secret that herbs, spices, and sauces are responsible for the final taste of the recipe. Ingredients such as green onions, cilantro, dried herbs cost a few pennies but can make or break your recipe.
- Use ingredients that bulk up the recipe without greatly increasing the price. Ingredients such as rice, pasta, lentils, carrots, potatoes cost next to nothing but they can make the portion look large and worth the customer’s money.
- Find alternatives to expensive, rare ingredients as long as it doesn’t impact the final quality and taste. Expensive ingredients might be the part and parcel of your recipe and that’s why buyers may prefer your restaurant. But in some cases, you can replace expensive ingredients with cheaper ones without reducing the quality of your services. For example, you can replace vanilla beans with pure vanilla extract. Or pancetta with a beacon.
- Reduce wastage, try to use all your inventory, and throw away less food. We already discussed that the higher percentage of your inventory you use in your recipes, the closer your ideal and actual costs will get to each other. And ultimately, only a small percentage of your inventory will get spoiled/thrown away and won’t significantly impact your actual food costs.
Final thoughts on automating food cost calculation
We hope that this article will change the way you were calculating your recipe costs and estimating your profits.
Want to discuss the recent trends in restaurant management and the food market? Let’s chat and see how our restaurant solutions will help you get ahead of competition and increase your profits with optimization tactics.