Can you easily calculate your food cost?
I come across bar and restaurant owners all the time that are unable to calculate their food cost/margin or their beverage cost/margin. These simplest of calculations can be done on the back of a napkin. I’ll try to explain each aspect of it here as simply as possible:
Whether you run a steak and seafood restaurant, a family restaurant, a pub or a martini bar, you need to know what your food cost is.
The basic food cost calculation itself is simple:
Opening Inventory Value + Cost of Purchases – Closing Inventory Value = Usage Amount
Usage Amount / Sales Revenue = Cost of Goods Sold (%)
This formula can be used to calculate your food cost anytime you want to: monthly, weekly or daily. We will use this formula to calculate a weekly food cost.
First, you need to collect the information that is required to do your food cost calculation.
You will need to have done a physical inventory of your stock, and you will need to add up your purchases for the week. You will also need to have your food sales for the week available.
Your opening inventory is the dollar value of what you began your week with. If you do a regular food cost calculation, your opening values will be the last closing value you had.
Your purchases amount is the dollar value of whatever you purchased during the week.
Your closing inventory dollars is the value of what is still in stock at the end of your week.
When you add your opening inventory and your purchases, you calculate the total product that you purchased for the week. When you subtract your closing inventory, you end up with your usage for the week.
Because your closing inventory is still in stock, you need to subtract it from the equation, because even though you purchased it in that cycle, you haven’t used it yet.
Then you take your usage and divide that by your food sales for the week. The percentage you arrive at is your food cost.
Here is an example of how this calculation works:
Opening Inventory: $10,300
Purchases: $5,500
Closing Inventory: $8,200
Food Sales: $22,000
Using our formula, your food cost would be calculated in the following way:
$10,300 + $5,500 – $8,200 = $7,600
$7,600 / $22,000 = 34.55 %
In this example, you began with $10,300 of food product in stock. You purchased $5,500 through the course of the week, and at the end of the week you did a physical inventory and determined that you still have $8,200 of product in stock.
Therefore, your usage for the week was $7,600.
I'm Barry Chandler and I'm The Bar Blogger. I've been involved in the bar and hospitality industry for 16 years. From Bartender to Bar Manager and from Food & Beverage Controller to Small Business Owner, I have worked with more than 500 bars in the last five years to help them streamline their costs and run a more profitable business and more than 800 bars and clubs use my Management Toolkit which can be accessed at ManageYourBar.com.
Hi Barry,
This is well stated. However, it is also important to have a target food cost number that is based on the sales of each dish and the yielded cost of the ingredients used to make each dish. Determining how much of each product you used will help target issues and determine whether you are wasting meat, produce, or an item from another category.
Calculating a food cost is a good first step towards increased profitability–the next step is knowing what you are going to do to take corrective action.
Great points Dave. My post merely shows you how to calculate your current profits but doesn’t show you how to measure actual against targeted food cost. That’s my next post!
It is so simple, I can’t believe every food broker doesn’t provide for their customers.
I have a newsletter that goes to customers of my show (The Bar Show). Can I publish your article?
Thank you for your help!