A New Restaurant

One fact of restaurant survival, or any business for that matter, is that you have to control your production costs.  For a restaurant those costs are mainly food and labor.  If you let those get away from you, your profits will disappear before you ever get a chance to worry about how you will use them.  If you’re running your business for the tax write-off that would be OK, but most of us are more interested in making some money off of our business.

So, what should your food cost be?  like so many other things in the business world, that really depends on what type of restaurant you are running.  The industry average is around 30% - 35%, but that might not be the right number for you.  Higher end restaurants can get away with running a lower food cost because the items on their menus are priced higher.  People expect excellent presentation, ambiance, and service, and they are willing to pay more to get that.  Fast food and casual dining restaurants need to set their prices lower, so their food cost percentage will be a bit higher.

When you were putting together the financial projections in your business plan you should have given serious that to what your food cost needed to be for your restaurant to survive.  That is the number you’re going to use to set your menu prices.

Your first step is to know what it costs to produce the items featured on your menu.  List out every menu item, and make sure that you have accurate recipes for every single item.  Next you will have to make a list of every ingredient that is in that recipe.  I have worked with managers that have used differing approaches to costing out their menu.  The first approach was to cost out every item down to the last detail.  Every herb and spice was considered for each dish.  If you are putting a frill pick through your sandwich, include it in the cost.  The second approach was to cost out all of the items that you can determine a price for an individual serving, but small items that cost less that $.01 are lumped into a “misc.” cost that is added on at the end of the cost list.  I tend to favor the second approach.  It is quicker, and trying to track individual costs that are a fraction of a penny is just too frustrating for me.  Just make sure your misc. costs are set high enough to cover the actual cost.

Now that you know how much food cost goes into each dish, you can determine how much you need to charge in order to reach your desired food cost percentage.  It takes a little bit of basic math to figure this out.  Let’s assume you want to run a 30% food cost, and the item on the menu uses $3.00 in food to produce.  Start by determining your “Food Cost Multiplier.”  Take your food cost percentage and multiply it by 10. The divide that number into 10. For our example, here is the formula:

.3 x 10 = 3   10 ÷ 3 = 3.33

So our food cost multiplier is 3.33  We said that the menu item used $3.00 in food to produce, so if you multiply $3 x 3.33 you get $9.99.  That is the minimum you will need to charge in order to achieve a 30% food cost.

That $9.99 assumes that there is no waste in the production process, which is nowhere near the reality of restaurant life.  Despite your best efforts to control waste, it is one of the necessary evils of the business.  Make sure when you are setting the final menu price you are taking into account the possible waste of food thatoccurs, otherwise you will find your food cost percentage is skyrocketing, and your profits are taking a dive.

Control your food costs.  Do regular inventories, make sure your staff is tracking any waste in a “Food Waste Log,” set production pars so your cooks are not over producing items that will get thrown away if they aren’t used.  It takes constant attention, but not taking the time to watch it will lead to financial disaster.