What Does Food Cost Mean?
In simple words, food cost can be defined as the cost suffered by the restaurant on food items after considering every external and unavoidable cost.
In short, food cost is a method used by the restaurant to understand how much they have spent on preparing the dish and serving it in comparison with the money they make per dish. Food cost considers every fixed cost such as electricity, labor, rent of the property, etc. incurred per dish/ingredients, etc. This way, the restaurant can easily, and accurately understand the profit margin of each menu and can make decisions accordingly.
Let us understand in depth the importance of food cost and how to calculate it. It can be done in three steps:
- Break up each dish as per the ingredients.
- Calculate the cost of every dish.
- Know the fixed cost per meal.
- Find out how much of your menu price is due to the actual cost of food.
- Fix the target food cost.
While fixing the target food cost, add all the fixed costs that have to be incurred to produce the dish. Let us understand this from one example. Let us suppose, the daily fixed cost of the restaurant is AED 1000 and on average, you serve 100 customers a day. Which means that AED 10 is your fixed cost/meal.
Now to find out how much of the total cost comes from the food, let us take the following example. All you have to do is divide the food cost by menu price. Suppose the cost of one salad for you is AED 3 and you sell it at AED 7 which means the food cost of the dish is 43%.
In the same way, let us understand how to fix the target food cost. Let us assume that you are selling a dish at AED 15 and you find that your fixed cost per meal is AED 9, which means your dish can cost you over AED 6 so that you can make a profit. Make sure to evaluate every dish to determine that the price of the dish is profitably more than the cost you have suffered.
Once this is done, it is easier for you to understand the operations and profit earning ability of your business through the POS System.
The Importance Of Calculating Food Cost
Profitability matters to every business and the restaurant business is not an exception to it. Without profit, no business will be able to serve its customers better. Most of us declare any business or restaurant to be successful if it is earning profits. If we talk about the restaurant business, the more activity through which you can earn a profit is by selling food. Hence, it is important to understand the cost of every menu.
The above-mentioned information might have made you understand the importance of food costs. However, not everyone takes it seriously. Most of the time, it is because of the assumption that food cost is a time consuming and boring task; and earning profit matters, it doesn’t matter if the profit is high or low.
Food costing is an important activity that every restaurant must perform, small or big. Many reputed and well-managed restaurants and even small food joints perform this activity.
Advantages Of Knowing Your Food Cost
As said before, it allows you to know which food item is profitable and which is not. This way you can earn more money by optimizing the menu. Knowing which food items are more profitable, you can plan your menu and pricing as per the food cost. Knowing how much each ingredient costs means you can survive the ups and downs of the raw material rates in the market. In short, you can make decisions to earn profit no matter what the market situation is.
How To Optimize Food Cost?
Here are a few strategies:
- Carbs heavy menu items as they are cheaper.
- Menu highlighting the most profitable items.
- Play around with ingredients until you get a profitable proportion for your menu item.
- Increasing prices of many items.
