Every person involved in the food industry has heard of Food Cost (FC), but not everyone knows how to calculate it properly. To bring this issue closer, let's start from the beginning, with the definition. Food Cost is the cost of food or the cost of purchasing food raw materials. In practice, we use this term when we mean the cost of purchasing raw materials needed to prepare a specific dish. FC is also one of the indicators affecting the profitability of a restaurant, understood as the monthly expenditure on food ingredients. But more on that in a moment.
To be able to calculate the Food Cost of dishes, we need:
* In these types of calculations, we should include either net/net or gross/gross values. However, we usually use net values to omit VAT.
Accurately written recipes for all dishes and drinks served in the restaurant are a separate activity that requires attention and time. The second important issue is to follow these recipes and stick to the declared weights. Thanks to this, we can ensure the expected quality and repeatability of dishes served. And this, in turn, is a recipe for a satisfied and returning Guest. Of course any changes in the menu, such as changing the size of portions, are possible (and sometimes justified), as long as they are clearly communicated - the Guest will not feel cheated by us.
With current recipes, we also need prices of raw materials for calculations. These are easiest to find on invoices from suppliers with whom we cooperate. In the case of meat, fish, most vegetables, and fruit, the matter is simple - the prices visible on the invoice are given in kilograms. Other food ingredients, usually those in packaging, may occur in different volumes and weights. Remember to convert them so that the given price is the price per 1 kilogram or 1 liter, or the price per unit as in the case of eggs.
If you have so far had the impression that you are reading a long and irrelevant introduction - you are wrong, and we kindly ask for your patience. The above-mentioned information and stages are necessary for proper FC calculations, which, as we mentioned earlier, is one of the indicators that affect business profitability.
The answer is yes, and the formula is quite universal. Its value, however, may differ depending on the data we used for calculations.
Formula for FC expressed as a percentage:
cost of purchasing raw materials (net) / selling price (net) * 100%
To understand this concept, let's assume that we are changing the menu to a new one and we want to set prices for new dishes based on their FC (this method is not necessary but certainly reasonable). Some of the ingredients of the new recipes have not been ordered before, so their market price should be taken into account in the calculations (or you can use the supplier's price list). After conversion, the obtained value gives us some idea of the final cost of purchasing raw materials, but it may not match it. It is also worth mentioning seasonal products, whose prices can change from week to week, or even from day to day. We are dealing with two FC values - expected and actual. The latter is calculated based on the prices of raw materials on invoices from the previous month, because that is how much we actually spent on purchases. Another equally important issue is to follow the declared weights and portion sizes in the recipes, as well as the amount of food waste resulting from improper management of inventory levels.
To this question, the answer has already been partially given. However, it's worth emphasizing the purpose of FC, which we've put a lot of effort into calculating. The FC expressed in terms of amount or percentage of a single dish will help us with ongoing margin control or setting the appropriate price threshold at which the dish will be profitable. Another example of the benefits of accurately calculated and monitored FC values is the ability to control the costs of the enterprise, and as we know, the list of costs in the gastronomy industry is long. The last (for now) question is - what should be the average FC in a restaurant? Many sources give a range of 25-30%, but this may not be true. The level of the FC indicator is a result of various parameters, including the level of operational and labour costs, let alone many others. Therefore, we can come across a profitable restaurant with an FC of 50% and an unprofitable one with an FC of 10%.
Finally, it's worth mentioning that having calculated the FC of all dishes, we are one step away from conducting a full menu analysis, and from there it's a straightforward path to menu engineering - something every conscious restaurateur should know. For the uninitiated, nothing is lost! We recommend a separate post dedicated to menu engineering.