Getting menu pricing right is a key factor in restaurant profit. Every good restaurant manager knows that some food items, for example, fish are more expensive than others but in order to calculate food costs correctly and set menu costs at optimal levels it is important to have a good grasp on both direct and indirect costs and understand how these combine to help you accurately calculate food costs. In this article we look at menu costs, explain how to calculate food cost percentage it is so important, and show you two great examples of food cost calculators.
As with any other cost calculations, accurate menu costs take into account everything that goes into the production of the food. In order to calculate accurate menu costs both direct and indirect costs should be included as well as a few costs you might not have previously considered.
Direct menu costs
These are the food costs that are incurred through the purchase or manufacture of ingredients that make up individual menu items.
- The outright costs of all ingredients
- The influence of fluctuating food costs
- The high or low volume of some dishes
- The cost of food waste
- The cost of drip loss (loss related to cooking and storage)
- Portion sizes related to the ingredients purchased
Indirect menu costs
These are the costs that are not related to food ingredients but rather the other elements that contribute to a menu item.
- Labour costs
- Additional labour costs for more complicated menu items
- Restaurant premises costs
- Equipment costs (catering and dining)
- Marketing costs
Calculating food cost percentage
We will see later in this article how food cost percentage is vital to setting menu pricing. Food cost percentage is exactly what it sounds like, i.e. the percentage of your sales that have been spent on food. Food cost percentage is the actual cost of food for a period divided by the total food sales for exactly the same period.
As the cost of ingredients is one of a restaurant’s biggest overheads, it is easy to see why this percentage is so important. It is recommended, for restaurant success that the food cost percentage is kept between 30-35% of total costs. If the food cost percentage is too high this will mean that your restaurant profitability is being adversely affected. If this is the case, the only realistic choices are to increase menu costs (which might impact on footfall) or reduce food costs (which might have quality implications).
When it comes to setting your menu pricing, being able to calculate food costs is only the starting point. Your restaurant sales are often your only revenue source and getting the right markup and profit margins are essential to business health. There are several different restaurant pricing methods and it is important to choose the right one for you. Less effective menu pricing options include:
- Menu pricing by competition – competitor prices are examined and an attempt is made to attract customers via a slightly lower price
- Menu pricing by demand – restaurant prices are set according to the demand for your specific experience or your distance from competition
- Menu pricing by current profitability – once you understand which of your menu items offer the most profit, menu pricing and sales methods can be adjusted accordingly
However, by far the most effective and responsive method of menu pricing is to use the portion cost method. In this method it’s important to ensure you calculate food costs for each menu portion and the optimum food cost percentage. For example, if you were cooking a very plain chicken and rice dish and got two chicken breasts from one chicken and 20 rice portions from a bag of rice, the food cost for the dish would look like this.
£4 (total cost of chicken)/2 (number of portions available)
+ £5 (total cost of rice)/20 (number of portions available)
In the menu pricing by portion cost method, this food cost is then divided by the recommended food cost percentage of between 30% and 35% to achieve the menu price. In the example above, the total food cost of the dish would be £2.25 which, when divided by the food cost percentage of 30% would suggest a menu price of £7.50.
Calculate food costs using a food cost calculator
We have established how you should calculate food costs and set menu costs correctly but all of this, if done properly, takes up precious time. If you find percentages and calculations off-putting, we have good news. There are food cost calculators that will take the hard work out of your menu pricing considerations and do the maths for you. Before you start using them, it is worth brushing up on your knowledge of VAT regulations. To save yourself time, we recommend creating a system that allows you to store calculation results for your regular menu items.
Total Food Service gross profit calculator
This is an easy to use online tool, with an intuitive interface that includes three useful tools and a choice between 20% and 0% VAT. The Total Food gross profit calculator,
- Uses your own required margin to calculate menu prices based on food costs.
- Calculates a food cost price from a menu price, again using your own required profit margin.
- Uses menu price and cost price to calculate gross profit.
Brakes Gross profit calculator
This online restaurant food cost calculator offers the same calculation ability as the previous one but presents the results in a more clean-cut format. It offers,
- Cost price to menu price using required margin
- Menu price to cost price using required margin
- Gross profit calculator
If profitability is of key importance to your restaurant business, and it should be, then you can’t afford to ignore menu pricing and food costs. With the right information at your fingertips you will be able to adjust menu pricing, food costs and marketing strategies accordingly and make sure you are selling more high profit dishes and meeting your food cost percentage targets.
At IMS of Smithfield we supply meat to top end hotel and restaurant clients across London. We offer competitive pricing on a range of halal meats and our expert staff are happy to give advice on all bespoke meat products. For more information, please get in touch with us by calling 020 7833080.