By definition, food cost is the ratio of ingredient cost to revenue generated from food sales using these ingredients, and is a metric that provides insight into your profitability. Figuring this out is not as intimidating as it sounds, and oftentimes, you have this data on hand already.

The desired food cost percentage varies by industry and restaurant style, but generally speaking, it is generally in the 28 to 32 percent range. This metric has a direct impact on your business profitability, so set some targets and get calculating!

The Food Cost Percentage Formula

Food Cost ($) / Food Sales ($) x 100 = Food Cost Percentage

Very simply: if your costs on a burger are $2.00, and you sell the burger for $7.99, your food cost percentage would be 25%.

• Calculating Food Cost

In order to calculate your food costs, you’ll need to review your inventory. The easiest formula for calculating your food costs is the following:

Beginning Inventory + Inventory Purchases – Ending Inventory = Food Costs

1. Start by listing all the food supplies that you’ve received at the start of the week. 
2. Insert the price you paid for each item on the list, and add together the dollar values of all the items.
3. Add in any additional purchases that you made throughout the week (i.e. did you have a rush order of potatoes mid-week because you ran out?)
4. The ending inventory is what remains after closing out at the end of the period for which you’re tracking inventory.

• Calculating Food Sales

This part is a bit easier. You’ll simply need to visit your POS terminal and run a sales report in order to understand how much you’ve sold. Make sure that the time period you specify for the sales is the same as the time period used for the food costs (daily, weekly, monthly). 

Most POS terminals have this available as a “Sales Summary” report or “Net Sales” report. 

Once you have both pieces of data, you can plug them into the formula and achieve your food cost percentage: Food Cost ($) / Food Sales ($) x 100 = Food Cost Percentage

There are varying degrees to which you can calculate your food cost percentage. For example, recipe costing helps by providing a unit level analysis of your costs. It enables users to use an ingredient level database, incorporating the costs of each ingredient, and generating an accurate total for each ingredient in a complete recipe. This is offered with lots of POS solutions or as standalone software to help with inventory management.

Get Inventory Moving More Quickly

Any slow moving merchandise or goods can lead to overstock and inventory issues. There is opportunity in every dish you create and in every good you produce, so here are some tips to help move those goods and get your products flowing more steadily:

• Offer discounts: we’ve all seen markdowns on bakery goods, sandwiches, and more to help get them flying off the shelves before they expire. Selling a discounted item before it expires is better than not selling it at all, so use your POS to help with this, and track all the discounts to see how often this is occurring.
• Remarket the goods: it’s possible that you aren’t doing your food enough justice in the way it is being presented. Utilizing tools like digital menu boards can help promote and market your food in an attractive way. Added bonus – digital menu boards can be integrated with the POS, so when you update your pricing in the POS, it reflects on the menu boards.
• Donate unused items: while you won’t necessarily be making direct profits off donations, donating items to a local charity is a great way to improve your business’ presence in the community, while helping others.

Tracking your food costs and gathering your food cost percentage is not as intimidating as it seems, and will go a long way to help your business thrive.