When calculating your restaurant’s meal expenses, you should consider both overhead and the cost of the food on the plate. Determining optimal pricing of your menu items is an essential component of your profitability, and here are the steps you should follow:
- Create an ingredient list for each dish - including spices, sauces, cooking oil, and garnishes. Calculate the cost of each ingredient per dish. For example, a six ounce can of tomato paste costs $0.57. Each can contains five 2 Tbsp servings, so you’ll divide the total cost of the can by five - giving you a cost of $0.11 per serving. Each dish should be portion controlled to ensure a consistent cost per serving.
- Combine the price per serving of all ingredients to determine the total cost of the dish. Divide your dish cost by the menu price to arrive at the percentage of the menu price represented by your ingredient costs. For example, if you sell a meal for $24 and your ingredient costs are $8, your total food cost percentage is 33%. Profitable restaurants generally try to hold food costs to no more than 28-35% of gross income.
- Calculate overhead per meal. This includes all of your nonfood costs, such as labor, marketing, rent, employee meals, shrinkage, and taxes. Determine your daily overhead, then divide it by the number of guests you anticipate serving each day. For example, if your overhead is $1,500 per day and you serve an average of 185 guests daily, your cost per guest is $8.
- Determine your target food cost percentage by subtracting your overhead per meal from the menu price. For example, if you price a meal at $16 and have an overhead cost of $8, your food costs must not exceed $8 in order to break even. Subtract your desired profit from your food costs, and divide by the menu price. If you’d like to earn a profit of $3 per plate, your food costs cannot exceed $5 - giving you a food cost percentage of about 31%.
- Analyze current menu prices to determine if they can support your overhead, cover food costs, and allow for a profit. Use your target food cost percentage as a guideline when setting your menu prices. For example, if you determine that your food costs can’t exceed 33%, and a meal has a $5 ingredient cost, your menu price must be at least $15.
- Analyze your sales per item to determine whether or not your food cost percentages can support your restaurant. If you’re primarily selling lower priced menu items, you may need to either increase your prices or lower your food costs to ensure profitability.
A comprehensive food cost analysis is crucial to your profitability, since your menu prices must conform to both the budgetary needs of your target market and to your restaurant’s bottom line. Even slight changes in pricing or ingredients can have a big impact on restaurant food costs, so striking the right balance is well worth the time investment.