How to calculate food cost in your restaurant

A restaurant’s food cost is an essential metric to determine and monitor profitability, especially in a highly competitive market such as the United Kingdom. Here, profit margins are low — averaging around 3-5% — and ingredient prices are volatile. 

The British restaurant scenario compels restaurateurs to adopt a particularly detail-oriented management approach, making food cost a key component in pricing strategies. Would you like to create the perfect menu and set ideal prices to optimise costs and revenues? First, let's learn how to calculate food cost to analyse it in favour of your business.

Food cost percentage: a definition

Firstly, consider the definition of food cost. This value is the result of the ratio between the total amount spent on preparing the plate and its selling price. It is typically expressed as a percentage and it is always inversely proportional to profitability. This metric encapsulates the fragile, yet complex balance which guides a successful entrepreneur. If the food cost of your dishes is higher than the benchmark (around 30%), your menu will not be profitable. On the other hand, if food cost is too low, you may have compromised on the quality of the course. 

Food Cost Percentage Formula

But how do you calculate food cost? Let's examine the formula to obtain the percentage:

% Food Cost = Cost of Goods Sold / Total Food Sales x 100

There are two fundamental elements you need to consider: the Cost of Goods Sold (CoGS), which is the cost of the raw materials used to prepare the sold courses, and the total food sales, as-to-say the revenue generated from selling those dishes. By dividing the first factor by the second and multiplying the result by one hundred, you will obtain the food cost. This percentage is essential for assessing the profitability of your restaurant.

Cost of food sold formula (CoGS)

How much did the raw materials for your menu actually cost? A proper evaluation of the real value of goods sold requires constant tracking of food inventory. This means recording the products in stock at the beginning and end of the "accounting period", a specific time frame used as a metric (also considering waste).

To calculate the price of initial and final inventories, you can choose between two methods: physical or perpetual inventory. The first approach involves manually counting all items in stock on a weekly, monthly, or quarterly basis. On the other hand, perpetual inventory consists in using a management software to constantly update stock in real-time, i.e. every time a product is received or used.

Average restaurant food cost per month

Here you can find a practical example. At the beginning of the month selected as accounting period, we start recording all the supplies. Summing up each product, we will obtain the initial stock value. Similarly, at the end of the month, we will replicate the counting with the remaining items, acquiring the final stock value. 

Unfortunately, not all stock may be sold. Therefore, you should consider waste. In fact, you should record it. Every time food is thrown away (whether due to expiration, damage, or any other reason), this must be calculated and included in a dedicated list. Only in this way, at the end of the month, will you be able to discover any inventory differences. Those are discrepancies in records that put a restaurant's profitability at risk, as they result from errors, unrecorded products or, perhaps, thefts.

In other words, managing storage with the aim to improve a restaurant's profitability means to keep a close eye on everything that separates the initial stock from the final stock, net of sales.

How to calculate food cost per serving

Let's apply the formula to calculate food cost for a single course on your carte, verifying its profitability. This assessment is extremely useful if you want to monitor the economic sustainability of your menu and adjust offerings accordingly.

% Food Cost = (Cost for making the dish / Selling price) x 100

To estimate the food cost of a plate, you need to sum up the value of all the ingredients used to make it, divide this total by the revenue generated from its sale, and then multiply the result by 100.

Is the percentage higher than 30%? If so, then the dish is not very profitable for you. However, if the food cost is below 30%, that course ensures good profit margins for your restaurant: emphasise it and encourage your staff to suggest it more often.

The goal is to optimise the menu by analysing the food cost of each dish, aiming to promote the more profitable ones and reduce costs where necessary. 

Strategies for controlling food cost

How can you reduce food cost without compromising the quality of your offerings? Drastically cutting portions could jeopardise the trust of your most loyal customers, just as replacing premium ingredients with cheaper alternatives might.

It's wiser to negotiate with suppliers to reduce food prices in exchange for consistent purchases or larger order volumes. Always opt for seasonal produce: monthly vegetables typically cost less and are the best option for recipes and presentation.

Implement inventory management systems to reduce waste as much as possible: always keep an eye on expiration dates and make the most of the raw material in all its parts.

Resources and tools for calculating food cost

Now that we understand the key role of food cost in a restaurant's profitability, we can agree that making basic errors, such as miscalculations and poor strategic decisions based on misleading data, should be avoided.

Reduce human error and save time through automation: food cost calculators specifically designed for the industry will help you monitor purchase prices and inventory, consistently providing accurate figures.

The most highly rated software for calculating food cost in the UK are MarketMan and SimpleOrder: both are comprehensive, reliable, and include stock management features. These are paid tools with a free trial option.

There are also no-charge alternatives: RestaurantOwner.com and Toast are popular cost calculators that offer essential functions for restaurateurs, if you are unwilling (or unable) to invest in such tools.

If you prefer working with Excel, you can easily download food cost calculation templates, which can be converted into PDFs. Free resources at your disposal include Restaurant Engine. On top of that, there are highly specific templates like Food Truck Empire, designed for the management and scalability of mobile kitchens.

Reduce food cost and optimise profits

A restaurant's success hinges on food cost, but that’s not it. For instance, it is fundamental to stand out by being recognised for the uniqueness of your offering.

With a strong identity and enticing menus, you can focus on the courses your regular customers love and attract new guests who have been looking for you. In this regard, explore all the benefits of promotions. It’s simple with TheFork Manager: among its many features, you can analyse the performance of each plate, as well as the opportunity to activate or deactivate personalised offers.

You can set promotions at specific times, perhaps to fill your restaurant during quieter hours, covering fixed costs. Even during peak times, TheFork Manager can assist you through its digital seating plan, ensuring effective table rotation to serve as many people as possible, optimising profits, and minimising customer waiting.

In the end, remember to always maintain an overall food cost between 25% and 35%, building a balanced menu that includes appealing, impactful “signature” courses alongside those more revenue-oriented. To keep your venue bustling, leverage offers and attract new customers during off-peak hours. Every working hour counts for restaurant managers! TheFork knows this all too well and offers an easy-to-use tool packed with features tailored for you.