In order to know if your restaurant is making a profit, you must know your food costs. Knowing the costs not only helps you with profit margins, but it also helps you build your menu. You don’t want to build a menu with ingredients that your customers don’t want to pay for. You also want to make sure your portion sizes work financially. Let’s take a look at why figuring out food costs is critical, and how to do it with your Point-of-Sale (POS) system.
Why Calculate Food Costs?
First, keep in mind, the average food cost percentage for a fine dining restaurant is 35%. A quick service restaurant hovers around 25%.
The most powerful way to show you why you should calculate food costs is by example. Consider this; you serve about 200 customers a day, 365 days a year. Let’s say you are off by a $1 when pricing salads, entrees, desserts, beverages, etc. This miscalculation could cost you about 75K in lost revenue a year. That’s why pricing out a bun and even a pinch of salt can help your business in the long run.
How to Calculate Food Costs
This is one way to calculate food costs in general, but you’ll want to make sure you calculate each menu item as well so you can choose competitive pricing when building or revising your menu. A good Point of Sale system will allow you to calculate food on a per item basis.
1. At the start of the week see how much inventory you have in house. Then see how much food has come in from your supplier as far as costs go. A good POS can help you calculate these numbers instantly. This is a lot easier, than going back to your walk-in coolers and freezing while you count and sort.
2. How much did you pay all together for this week’s inventory? Again, a good POS system can share with you all your inventory numbers.
3. At the end of the week calculate your total sales. A good POS system can give you those analytics quickly.
4. Use this formula to figure out your food cost percentage at the end of the week:
(Beginning Inventory + Purchases – Ending Inventory) ÷ Total Food Sales = Food Cost Percentage. Although it is possible to calculate these numbers by hand, a good Point of Sale system will calculate this for you, saving you the hassle of manual calculations.
Beginning Inventory $10,000
Ending Inventory $12,000
Food Sales $8,500
(10000 + 5000 – 12000) ÷ 8500 = .35 or 35%
5. Repeat this process each week to figure out your food cost percentage.
See, this is not that challenging once you have a step-by-step system in place; however, you’ll want to make sure you also consider labor cost, rent, overhead costs, etc. when calculating your final profit. Have questions about how a POS can help you cost out food in your restaurant? Give Bepoz a call for a free demo.