As a culinary entrepreneur, knowing and optimising your costs is key to the success of your company. One of the most crucial elements of cost management is calculating your food cost percentage. This percentage gives you the information you need to determine your menu prices, maintain your profitability and take strategic decisions.
Understanding and effectively managing the food cost percentage can mean the difference between a flourishing company and one that struggles to make ends meet.
Food costs are all costs that go into preparing food. This percentage is the calculation of the relationship between the cost price of preparing a dish and the turnover of the dish. A good understanding of your food costs helps you to correctly set your prices, which is the basis of a successful business. The most important elements of your food costs are:
Purchasing costs of your ingredients: this encompasses the costs of all the ingredients you use to prepare a dish.
Loss and waste: during the preparation and storage of food, losses happen due to food spoilage, spills or mistakes in the kitchen. These losses must be accounted for in the total food cost percentage to give a realistic picture.
Portion sizes: the quantity of each ingredient that you use in a dish has a direct influence on the food cost percentage. Consistent portion sizes help you to accurately calculate the cost per dish.
Seasonal price fluctuations: prices of fresh products vary depending on the season and availability. If you often use these types of products, such as fresh fish, you need to account for these fluctuations in your food cost percentage calculation.
Important: there are more expenses involved in preparing dishes than the ingredients alone, such as the cost of labour, gas and electricity. Your food cost percentage doesn't include these expenses.
Did you know: the average food cost percentage ranges from 30% to (an excessive) 45%. High time to make a change with smarter choices because, at the end of the day, you need to make sure you can pay your staff and your bills.
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Whether you run a restaurant, hotel, bakery, catering company, sandwich shop or takeaway restaurant: knowing your food cost percentage is crucial for various reasons:
Setting the prices on your menu: if you know your food cost percentage, you can set menu prices that are both attractive to customers and profitable for your company.
Profitability: optimising your food costs helps you to maximise your margins.
Inventory management: by regularly calculating your food cost percentage, you can manage your inventory more efficiently and keep food waste to a minimum.
Cost management: having an insight into your food costs gives you the ability to manage your expenses through smart purchasing strategies and improved menu planning.
You can calculate your food cost percentage using a variety of methods. One way is to calculate the food cost percentage of the entire business. Or you can calculate the food cost percentage per dish. We'll run through the methods step by step and give you examples to illustrate them.
To calculate the food cost percentage for your entire company or the actual food costs, you start with the cost of goods sold (COGS). For this calculation, you need an inventory count. This can be a time consuming task if you don't have a smart inventory system, such as stock management integration. However, it's important to keep an overview of your stock.
You calculate the COGS as follows:
Beginning inventory (in euros) + purchased inventory (in euros) – ending inventory (in euros) = COGS.To clarify, here is a simple example. At the start of the month, the value of your stock was €5,000. During the month, you bought another €1,750 of fresh products. At the end of the month, the value of your stock was €5,500.
€ 5,000 + € 1,750 – € 5,500 = € 1,125
To calculate the food costs of your entire company for a specific period, you need to use the turnover of that period.You will need the following formula: (COGS / turnover value) * 100 = food cost percentageLet's say your turnover in a given month was €4,000; the food cost percentage of your hospitality business would be:(
€1,125 / €4,000) = 0.28 = 28%
The actual food cost percentage for this period was therefore 28%, which is relatively good.
Calculating the food cost percentage of a dish is a little more involved. You have to add up the costs of all the ingredients in the dish and divide them by the purchase price. Use the following formula:
(Sum of all ingredients in the dish / net purchase price of the dish) = food cost percentage
For example, you have a classic sub. Your ingredients cost €1.50. You sell the sandwich for €6. The food cost percentage of your sandwich is therefore:
€ 1.50 / € 6 = 0.25 = 25%
This percentage is still below 30% and is therefore pretty good. But there are a few other important factors to take into account.
As we explained earlier in the article, there are other factors besides purchasing costs that influence your food cost percentage.
Basic ingredients To start with, there are the ingredients you don't include in the calculation but still use. These all add up over time. Olive oil, salt and pepper are some examples. Therefore, always add 1 to 2% to your food cost percentage to account for these costs and to gain a clear and realistic picture of your food costs.
Unused ingredients Remember to consider waste: the ingredients that you bought but didn't use. For example, you have a kilogram of carrots including the greens. After removing the greens and peel, you are left with 800 grams of product. That is 20% less weight. If you bought the kilogram of carrots for €3, you need to add 20% to compensate for the loss. The cost price is therefore €3.60. This also applies to meat and fish. If you buy a kilogram of salmon fillets for €15 but are left with 900 grams after removing the skin, you actually paid €16.50 per kilogram. To compensate for these discrepancies, you should add another 5% to your food costs.
Consistent portions If your portions aren't consistent, your food cost calculation will be misleading. Take measures when devising your dishes so you don't shortchange yourself regarding the cost of your dishes.
Optimising your food costs, i.e. lowering them, improves the profitability of your company. Our experts share some tips:
Negotiate with your supplier: make sure you get the best prices by choosing the right supplier and buying in bulk. Remember that quality should always be the highest priority to maintain customer satisfaction.
Seasonal menus: adapt your menu to seasonal products to minimise costs.
Efficient stock management: monitor your stock carefully to prevent spoilage and waste.
Portion control: make sure your portions are consistent to allow you to calculate your costs accurately and prevent waste.
Creative reuse of ingredients: use leftovers and by-products in new dishes to minimise waste and save on costs. Try serving an appetizer board.
Tip: read our article about optimising the margins of your menu.
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