The ABCs of Effective Food Costing in your Restaurant

One of the most fundamental aspects of successful restaurant and bar management is food costing: the difference between the cost to you to prepare a recipe or menu item and the amount you can charge your customers for that item. In other words, food costing is all about your profits.

Food costing is the only true way to calculate and track your actual profits, making sure your restaurant is always operating in the black. Accurate food costing is paramount to the success of your business, so you need to know how to effectively cost out your menu items, and also what tools to use to do the job right.

Ideally, you can use food costing to find the sweet spot where you make profits and still drive sales – achieving a balance between being affordable and making money. You don’t want to drive customers away with expensive items, but you also can’t set prices so low that you’re always losing money.

So how does a successful restaurant or bar use food costing to their advantage? Read on for the fundamentals of pricing and costing in your hospitality business.

The golden rule to food costing and menu pricing

In general, the industry standard for restaurant and bar menu pricing is to aim for your food costs to be around 30% of your total budget.

Depending on the type of hospitality business you’re running, you might find you can set your costs as low as 20% or as high as 40% — your ideal cost percentage will vary with how high-end your establishment is, the type of food or drinks you are serving and where they come from, and the city or region you are operating in.

This means you want to ensure that you work with your suppliers to choose and purchase food and bar inventory within your budget. And make sure to include the cost of condiments and complimentary bread and butter on the tables, the frying oil and any liqueur used in the kitchen, and the lemon and lime slices on your bar, when you add up your orders as part of your total budget.

You can also use the golden rule to help price your menu items appropriately. For example, if you are spending $1.00 on raw ingredients for an item, you’ll need to charge at least $3.33 for that food or bar item to make a sustainable profit for your business.

Calculating your cost per plate or drink for your whole menu is essential to establishing consistent profitability and guaranteeing the success of your restaurant or bar. And by applying the same cost ratio to all your food and drink items, your staff will also be able to set appropriate prices on special order plates and drinks on the fly.

Food costing fundamentals

With all the factors to consider when setting food and bar costs, you’ll want to make sure you track all the right costs and include them in all the right calculations.

When you set out to improve your food costing best practices, don’t forget these essential factors in your calculations:

  • determine the exact cost of menu items, breaking down how much your restaurant is spending on full cases, prep and batches and even each plate.
  • be specific about all your costs – include raw ingredients, labour and supplies in your cost calculations as even the time spent preparing an item and washing the dishes afterwards are costs that affects your bottom line.
  • calculate effective selling prices, ensuring your menu prices are reasonable to keep both you and your customers happy.
  • include detailed recipe preparation instructions, even pictures, in your inventory software database to ensure food is prepared the same way every time to save money and maintain customer satisfaction.
  • consider your competitors, making sure the prices you’ve calculated are competitive while still protecting your bottom line.
  • reduce your food costs where possible by tracking and controlling portion sizes, wastage and freebies – wastage can cut into your profits, as can any free or subsidized meals that you might be providing for staff, suppliers and regular patrons.

The bottom line is that the key to effective food costing is remembering that your costs aren’t just about the food and drink items alone. Everything in your restaurant and bar, from your serving and kitchen staff, to HR management, to your heating and electrical bills, are paid for by what you charge for each menu item.

Food costing is detailed work, but thankfully, there are tools available to help streamline this essential process.

Food costing tools and software

Restaurant inventory management software, like Optimum Control, makes food costing an easy and accurate part of your day-to-day business operations.

Pen and paper calculations, even digital spreadsheets, are time consuming and error-prone. With professional restaurant software, you have an all-in-one tool to better identify, record and weigh your food, drink and recipe costs, ensuring you’re using the best pricing models for your restaurant or bar. Simply enter your target food cost percentage, and the software will help you calculate your selling best price and determine the expected yield and profit of each batch recipe.

Even better, based on your preferences and your recipe details, your food costs will be updated automatically as ingredient prices, menu items or suppliers change. And when the price of your inventory items go up, you will be notified. These kinds of features allow you and your staff to stay on top of your costs and make the best decisions about your menu, daily specials, and suppliers at your establishment.

Take control of your food costing with Optimum Control

Optimum Control’s all-in-one restaurant inventory management software combines the simplicity of managing food and recipe costs in a spreadsheet with the genius of a fully integrated and mobile solution.

With every software package, we provide your hospitality business with a complete and accurate view of your overall menu cost and a break down into all components of each dish, empowering you to determine cost of sales with ease and confidence.

Talk to us today and learn more about the features and benefits we offer in our suite of inventory management software to help you take control of your business.