Food costing is a strategy that helps restaurants evaluate the costs of food and determine what level of cost needs to be maintained to offer menu items at competitive prices. The basic formula involves determining the costs associated with ingredients and dividing them by the price of the item on the menu. This helps restaurants become aware of any increases in ingredient costs and take necessary actions to remain profitable, such as purchasing different brands of ingredients or raising menu prices slightly. Both small and large restaurants can use food costing to measure profitability and maintain control of food costs.
Food costing is a strategy that involves evaluating the costs of food incurred by a restaurant as it seeks to provide customers with access to the items offered on a menu. The idea behind food costs is to determine what level of cost needs to be maintained in order for the business to offer the menu items at competitive prices in the local market. This helps calculate food prices based on the costs associated with preparing each item and can also help identify increases in certain ingredients which in turn lead to changes in menu items offered or menu price adjustments.
With food costs, the idea is to determine the ratio of food costs incurred by the restaurant to the revenue that is generated by preparing and serving that food. A simple food costing formula requires determining the costs associated with the ingredients used to make an item, then dividing those costs by the price of that item as listed on the menu. That figure is then multiplied by 100 to identify the cost of the food.
This basic calculation can be used to determine the total cost incurred in creating each menu item for any desired period, with many restaurants choosing to track food costs on a weekly or monthly basis. The approach makes it easier to become aware of any increases in the cost of ingredients and determine what actions may be needed to help the company remain profitable.
Depending on the reasons for the cost increases revealed by food costs, the restaurant may choose to purchase different brands of ingredients that have similar quality but cost less. Other times, going with other brands of ingredients may be undesirable or impractical, making it necessary to raise menu prices slightly to continue turning an acceptable level of profit. When none of the options are available, it may be necessary to eliminate one or more menu items and introduce newer items that can be prepared at a lower cost to avoid incurring a loss.
Both small restaurants and larger restaurant chains will use food costs to measure the profitability of their operation and to maintain control of food costs. The basic formula will work with virtually any type of restaurant, from a simple restaurant-style establishment to the most elaborate and fine dining establishments. In some cases, the chef will work hand-in-hand with a comptroller to determine the best way to approach the cost of food such that menu items are of high quality while still turning an acceptable level of profit.
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