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Food cost is the single highest expense in operating a restaurant business. Left unchecked and managed poorly, it can spell disaster for the business.
No doubt most entrepreneurs involved in running small to medium size eateries, cafeterias, and fine dining restaurants have their own way of managing their food stocking. Thanks to these methods, some become highly successful and profitable. Others don’t.
In all likelihood, the smart, successful ones know how to use the food cost formula that has helped them grow and perhaps even expand and establish a branch or two in different locales.
What’s a food cost formula?
The food cost formula is a simple, uncomplicated and efficient way of tracking your food expenses. Consequently, this allows you to manage better this aspect of the business.
Here’s how it works:
Determine the value (U.S. dollars) of your food inventory at the beginning of the week.
Add to this your purchases of the week.
Deduct your ending inventory (end of the week).
And finally, divide this by your sales of the week. You will then get your food cost percentage.
Example:
Value of beginning inventory $5000
Plus value of purchases for the week $4000 = $9000
Less ending inventory $6000 = $3000
$3000/sales of the week $8000 = 37.5% Your food cost percentage
So, what do I do with this food cost percentage?
Know that among successful restaurant owners, the acceptable range of food cost percentages run from 28% to 32% of total food sales. For certain types of restaurants that enjoy the economies of scale (buying in bulk at preferential rates), like fast food chains, this percentage can go even lower.
The food cost percentage (37.5%) resulting from the preceding sampled demonstration of the food cost formula is on … Read More
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