What is Food Cost Percentage and Why Does It Matter?
Food Cost Percentage (also known as FCP) can seem intimidating, difficult to understand and even time consuming to handle, but it’s also one of the most important metrics for measuring your restaurants success. If it’s probably handled and gotten under control, you can use it to maximize your profits for this quarter and beyond.
What do you need to know in order to understand FCP? More than half of restaurateurs say that their food and operating costs are a huge challenge to overcome. Understanding and managing FCP will reduce these costs, so you need to know your total food cost, each item’s cost per pound and each ingredient’s cost per cup.
Now, this can all seem very daunting. However there are ways to break these numbers down so that you, too, will be calculating your FCP and optimizing your operations in no time.
On average, FCP tends to hover between 24-35% for QSRs and FSRs. It’s an enormously useful metric because it helps you determine what items are profitable and whether or not you’re on track for continued success. In the most simplified terms, FCP is the cost of goods sold divided by the sales you make on the finished products.
Here’s how to calculate it:
Identify all of the food supplies that you purchased at the start of the week. You should be taking inventory each week to not only help you determine this, but your ending inventory too.
Add the dollar value of each item together.
Track your purchases throughout the week.
Track total food sales per shift.
Calculate your FCP per week using the following formula:
FCP = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Now you have your percentage. The next question you need to ask is: What do you do with this information?
Finding Ideal Food Cost
Unlike FCP, “ideal” food cost is what your percentage would be assuming there was no food waste, theft or over-purchasing. It disregards inventory and instead focuses on the total cost and sale of each item. There are simple formulas to figure out all of this, too; you can use the information garnered for calculating the FCP to understand Ideal FCP.
Food Cost Per Dish = Food Cost of Ingredients x Weekly Amount Sold
Total Sales Per Dish = Sales Price x Weekly Amount Sold
Ideal FCP = Total Cost Per Dish / Total Sales Per Dish
Of course, this is only one piece of the Ideal Food Cost puzzle. Other factors like your overhead and operating expenses, rent, labor costs and even the current marketplace at your location all factor into how high a FCP you’re willing to accept.
Now that you have your FCP and Ideal FCP, you can begin to compare the two figures and start making some changes.
What do you do with FCP?
When these two percentages don’t match up, it means that there’s some kind of disparity between what you’re selling and what people are actually eating. Learn more about reducing food waste in your restaurant.
There are other ways to optimize your sales and prevent too big of a difference between ideal and actual cost.
Be smarter about pricing. You may be able to raise your menu prices a bit to make up for the loss, but be careful: Even loyal customers can be driven off by too big of a price hike.
Menu engineering helps you identify your most lucrative items so you can prioritize those sales.
Promote carbs; they’re cheaper to buy in bulk and more likely to fill people up, so you can also reduce the portion sizes of dishes that are very carb-heavy.
Portion sizes should also be reduced if a lot of guests are leaving food on their plates at the end of their meals.
Be careful with how much free food you offer, even things like bread and butter.
Shop around for supply vendors to be sure you’re getting the best deal, but also remember that relationships with your vendors matter. Once you find someone worthwhile, stick with them.
Consider implementing seasonal changes to your menu. Certain ingredients may be cheaper in the spring than other months. Customers also find seasonal dishes trendy; exclusive menu items are more popular and profitable since they only appear during certain times of the year.
Pricing your menu properly can be tricky. How do you know you’re offering the right price point for you and your customers? Typically you should add up the total cost of ingredients in the recipe and divide it by your ideal FCP; round up or down to keep prices simple, but that will get you closest to your ideal FCP.
While all of this can be very confusing, seem time-consuming and leave plenty of room for human error, it’s 2020: Most hard math problems don’t have to be figured out manually anymore. The right Point of Sale system tracks your inventory for you, tracks your sales, analyzes this data and makes it much easier for you to calculate and make decisions about your FCP. With eatOS, we do the hard work so you don’t have toand you can focus on cultivating an ideal restaurant experience instead.