How To Do Food Costing 101

Food
Buffet food

Food costing is one of the major skills a real chef should know how to do properly. In a country with high labor cost, such as countries in North America or Europe, food costing is one of the main things that can make or break your business.

That’s not to take away from the importance of controlling your labor cost properly, not at all, but if you are already an involved owner (or Chef) and otherwise know what you are doing, the food costing is your best tool to make profit in your business.

As a diversion from the main topic of this article, which is “how to do food costing”, I would like to say that I have never, in my 22 years of experience, seen a restaurant or food service establishment do well if the owner was an “absent owner”. That being said, I am assuming that you are an involved proprietor or Chef and just want to update yourself on the different aspects of food costing, so here it is.

Menu Cards:

Menu cards are to be done for every recipe of every item from your menu.

Example: Chicken Satays

1 chicken breast ($1.60, 1 box of chicken breasts =32 dollars for 20 breast, is how we come to that number),
2 oz. peanut sauce(32 cents; divide the volume of the jug of sauce to 2 and then take the price of the jug of sauce and divide by the resulting number.
Example: 100 oz jug /2 oz = 50. Sixteen dollars jug /50 = 32 cents per 2 oz portion),
1 oz green salad for serving = 15 cents,
Oil, garlic and salt and pepper for seasoning = 5 cents.
Total cost: $2.12

Now take this number and multiply it by 4. This way your food cost will be 25%. Menu price should be $8.50 or even more. You can safely go to 9 dollars, even 10, and I’ll explain you why. When you are deciding on the menu prices, there are other factors to take into account, aside from food cost, such as “perception of value”, and also the price of other comparable items in the menu. You need to fine-tune your prices, because you want to give a chance to every item in the menu. For items with a higher margin, such as lobster, steak, etc, you can shoot for 30% food cost. In this case just multiply your cost by 3.3 and take the number for menu price.

What I mean by comparable items is this: If you want to sell “Add chicken to a salad” for 7 dollars, Chicken Quesadilla for 12.99, then your chicken satay should be priced at 10 dollars (or 9.99) in your menu. They all have good perception of value, that’s why your food cost is good for these items.

If you can’t calculate the food cost on your own, then you can let your food supplier do it for you. Large distribution companies, such as Sysco, have their own corporate chefs, and if you give them your recipes and measurements they can calculate your food cost on each item from your menu based on what you are ordering.

Inventory:

Before you start to be serious about food costing, you must start with the initial inventory, otherwise how would you know later if your food cost is correct? Especially if you are just starting your business, in the beginning you will be building up your inventory, so your food cost may seem a bit high, even though if it was perfect.

Wastage Recording Book:

Record any wastage and instruct the cooks to record it, too. When pricing your food allow for 2%-5% of wastage. If you have more wastage than that, you are doing something wrong. Possible wrongs can be: over-ordering; over-production; improper handling; improper storage; your menu requires too large an inventory; human error. You must address any problems with wastage, or it can destroy your food cost.

Keep a Record of All Discount Meals, Promos and Free Meals:

You need to keep a record of all the discounted employee meals (usually they pay only 50% of the menu price), any promotional priced food, and free meals (such as, if your company allows free meals for management), otherwise those added costs can make your food cost look worse than it is by at least 5% or more.

Monthly Inventory:

This is probably the best tool to check if your food costing efforts are producing the desired results.

1. Record all the food products you have available at the end of the month and calculate their value based on your invoices.

2. Take into account the value of the inventory you had at the beginning of the month.

3. Calculate all your food invoices for the month.

4. Calculate all your food sales for the month.

5. Credit the discounted and free meals at full prices for your food cost calculation. You can make two numbers if you want: one with the discounted prices credited at full price to be fair to the kitchen staff and the Chef, and another number just for your personal use, without giving credit for those perks, to find out what your real food cost is.

Example:

Start of month available inventory $1800,
End of month available inventory $2000,
Total food purchasing invoices $6500,
Total food sales $18500 at regular menu prices,
Food sold at 50% discount $1200, ($2400 at menu prices)
Free food by menu prices $850.

Now calculate 2000-1800=200 (you have $200 more in available products. If at the end of the month you have less product than at the beginning of the month, then you need to add the difference to the monthly invoices).
Now, subtract 200 from 6500=6300 is the food product you used in this month.

Total sales were 18500+1200+850=20550

Now divide 20550/6300=3.26

Now divide 100/3.26=30.67% (not a bad food cost for the kitchen team)

Your real food cost would be 34.12% without the credit for the employee discount perks).

Now, when you know your real food cost you can keep fighting the good fight. Cheers. Click on the link to read another Food Costing article by Chef George Krumov. If you have any questions and comments, don’t hesitate to ask me in the comment section, and I’ll answer as good as I can. Food costing can be different for the different kinds of food establishments, such as buffets, breakfast and lunch restaurants, all-you-can-eat sushi, etc. I am not able to cover everything about food costing 101 in this article, so let me know if you have any questions below.

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