A vital part of any restaurant business will be determining the restaurant food cost of menu items. It is very important to be as accurate as possible with these cost, so a business can set the prices properly. The correct prices will maximize profit. Finally, to make sure prices remain optimal a restaurant must control their portion sizes, as this will keep the actual cost close to what was predicted.
Restaurant Food Cost
The basics of food costing include breaking a menu item down into all its components, including packaging. Then find out how much of each component is in each menu item, and how much that amount costs. Adding up the individual components cost will give a total cost of each menu item. The rule of thumb to use for pricing is to multiply the food cost by three to estimate the total cost to produce plus a little profit. It is imperative to understand the true cost of food production.
Rule of three
The multiple by three rule of thumb includes one multiple for the actual restaurant food cost, one multiple for labor, and one multiple for overhead (rent / insurance, and other fixed costs). The idea is to have food costs at about 30%, labor at somewhere between 20 - 30% and overhead at about 20%. Adding these up the total cost of food is 80 - 90% of sales price. Multiplying the food cost by three should leave you with somewhere between 10 and 20% profit margin.
Remember that every piece of food a restaurant sells must cover the labor and overhead cost. Food sales are the only income for a restaurant. These costs MUST be included in your food cost and pricing calculation. Managing these costs and keeping them under control is the real secrete to the restaurant business.
Bad pricing
Bad pricing has doomed more than one restaurant. Restaurants that are not priced right could be losing money with ever order. We see it all the time, restaurants try to undercut each other and lower their prices based on the competition. Not realizing they are selling the food for less than it costs to make it. While keeping up on competitors pricing is smart, using it to set prices will undoubtedly cause trouble.
Automating the restaurant food cost process to some level, will be valuable. Create a spreadsheet with all the food items on one axis and the all the components across the other axis. Entering the cost of each component and let the spreadsheet add it up. The benefit to having a spreadsheet is that it can easily be updated when component costs change and automatically recalculate the menu item cost.
Food Cost Example
Here is a quick example of costing out a cheese pizza with some made up numbers.
Components:
- Dough (0.96)
- Sauce (0.54)
- Cheese (1.25)
- Box (1.09)
- Wax paper (0.03)
- Oregiano and Parmesian cheese (0.10)
Total cost for this made up example is $3.97, so you should be charging around $11.91 or three times the cost for it.
Component Cost
Finding the cost of components can be easy, like dough balls, just dive the number in a case by the case price. It can be a little more challenging with a component like with cheese. Find out how much (in oz) makes a good pizza. Then calculate your cost per oz by dividing the package weight (in oz) by the package cost.
Now you have the cost per oz, and how many oz you need for a given pizza, so you can just multiply to get the cost. Very small use items can be estimated, like oregano. Think about how many pizzas can be made from the package size and divide. Just make sure to include everything in the menu items production. Don't leave anything out.
Food loss
Maintaining a good restaurant food cost can prove to be a challenge. It will all make sense on paper but can be a disaster in real life if a restaurant doesn’t carefully control the food cost. The main two reasons for bad food costs are food loss and bad portion control. Food loss can be cooking mistakes, dropping food (throw it out!), spoilage and prep waste.
New employees will make mistakes but with training and experience their cost for mistakes will go pretty much to zero (we all still make small mistakes, mostly they don't cost much). Restaurants should have a good training process, so the new staff can come up to speed quickly. Shadowing experienced employees for a few shifts can be very helpful.
Inventory
The management of inventory will be critical for minimizing spoilage. Best practices are to keep track of the items that are lost, so a reduction can be made on the next order. With smart inventory and ordering control a restaurant should be able to reduce spoilage to a very low cost. Monitoring of prep procedures will also help curb the wasting of a primary ingredient. With tight controls and training a restaurant should be able to drive food loss to a very small number.
Portion Control
The hard work of costing and pricing can all be undone without proper portion control. The profit margin of a restaurant relies on executing properly portioned food items. The pricing is based on a certain portion, get heavy with an expensive item and you will lose money. Restaurants that don't carefully control the portions, can have a true cost that is very different then what they think. Every item should have very tight portion control.
French fries should be weighted out and placed in portion bags, don’t let employees just grab handfuls. Have an exact amount of pepperoni for each pizza size, Use weights for other toppings. Find a cup that holds the right amount of cheese for each pizza size and make sure the staff uses it. 25% extra chees on a pizza can remove all the profit on that item.
Consistency
The other benefit to portion control is very consistent food which is very important for a successful restaurant. For example, sub meat should be weighed so that your costs are accurate, but also so that a customer gets what they expect every time. Make sure to document all the portion sizes on a laminated sheet and place on the wall so all the staff has quick reference to it.
Managing food costs, pricing and portion control are critical for a restaurant to be profitable. Restaurants must take the time to carefully cost out their menu items and update them on a regular basis. Being successful boils down to maximizing your profit margin, a number that is dependent on food costs.
Have a menu item you are having trouble costing out? Or don’t know where to start? Consider joining our coaching plan, we can help! We have starter spreadsheets available and can coach you through costing out your menu.
