If you’ve never worked in the restaurant industry before, you probably didn’t realize that owning a restaurant means you’re not only a cook, but you’re also Mr. (or Mrs.) Fix-It, a “hospitalian” and an accountant—all in one.
The numbers are extremely important when it comes to owning and operating a restaurant; keeping a close watch on your profit margins, food cost and price per plate is all the difference in having your doors open or closed…for good. Knowing your food cost helps you set a price per plate, which (if priced appropriately) will help you forecast profit. Unfortunately there are also several macroeconomic variables at play which also dictate your price per plate, one of which being what price your market will bear. Priced too cheaply, and you’ll bleed money…but price too expensively, and you could alienate diners who either can’t afford your restaurant, or don’t feel they get their money’s worth. Sourcing good ingredients while still providing the appropriate “perceived” value will be a consistent balancing act.
Pricing the plates is just one component to calculating your overall food cost. You may hear your colleagues tout a 31% food cost, but even then, they’re only reaping a 1.2% profit margin (at best). Restaurants have notoriously low profit margins, and only an amateur entering the field would expect otherwise. Still, there are ways you can affect your bottom line, and it starts with your food cost.
So how do you calculate your food cost? Start by gathering the following information:
- Cost of beginning inventory
- Purchases cost
- Cost of ending inventory
- Food sales
Now remember this formula:
Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
The final percentage indicates the cost for every dollar you took in sales. Let’s take a look at this example:
- Cost of beginning inventory = $15,000
- Purchases cost = $3,000
- Cost of ending inventory = $13,000
- Food sales = $15,000
Your formula is ((15,000 + 3,000) – 13,000)/15,000 = .33 or 33% food cost
If you’re struggling to break even or turn a profit, analyzing your food cost is the first step. A gut reaction to low sales is to simply sell more food, or worse, raise prices. Consider any price increase carefully and thoughtfully, because those changes could negatively impact your customer sales. Before tackling your price per plate, review other areas of your supply chain. Are you holding too much money in inventory? Are you losing a lot of revenue in food waste? Take the time to measure and track these small supply chain leaks before taking action—you’d be surprised how quickly the little things add up. For example, before throwing away those condiment bottles and other bulk sauce containers, a quick spatula or scoop can secure you a few more ounces which would otherwise be going down the drain.
Implement a good tracking system so you can be confident in the numbers you work with. For example, teaching servers to track a 2 oz side of ranch on orders helps you properly measure your inventory (make sure it’s exactly 2 oz by using a scale). Or if a 14 oz portion of Tuna is ‘wasted,’ on the line, track that too. Without these figures, your inventory analysis will be skewed. Finally, don’t forget your bulk recipes! Preparing large portions of salsa in advance saves you time on the line, but tracking that product is an entirely different matter; your fish entrée may only utilize 1 oz of your pre-made salsa, but it’s extremely important to learn just how much that 1 oz costs per plate. Even if it’s just $.05 on a plate, you’ll find the smallest amount of garnish is still worth measuring and tracking.
Identifying these key issues in your restaurant can make a seriously (positive) impact to your business. Give it 90 days, and see how easy it is to make simple improvements to your bottom line!