How do you calculate food costs, and how much should the average cost be to operate a successful restaurant business?
Calculating food costs and understanding the average cost needed to operate a successful restaurant business is crucial for maintaining profitability. Here’s a guide to help you with these calculations:
Calculating Food Costs
- Determine the Cost of Each Ingredient
- List all ingredients: Identify every ingredient used in your menu items.
- Determine the unit cost: Find out the cost of each ingredient per unit (e.g., per kilogram, litre, piece).
- Calculate the Cost of Each Recipe
- Quantity used: Note the quantity of each ingredient used in a recipe.
- Ingredient cost per recipe: Multiply the quantity used by the unit cost.
Ingredient Cost=Quantity Used × Unit Cost
- Total recipe cost: Sum the costs of all ingredients in the recipe.
- Calculate the Cost Per Serving
- Recipe yield: Determine how many servings each recipe makes.
- Cost per serving: Divide the total recipe cost by the number of servings.
Cost Per Serving=Number of ServingsTotal Recipe Cost
- Calculate the Food Cost Percentage
- Selling price: Set the selling price for each menu item.
- Food cost percentage: Divide the cost per serving by the selling price and multiply by 100 to get the percentage.
Food Cost Percentage=(Selling PriceCost Per Serving)×100
Average Food Cost Percentage
For a successful restaurant, the average food cost percentage typically ranges between 25% and 35%. This means that for every $100 earned in sales, $25 to $35 should be spent on food costs.
Other Key Costs in Operating a Restaurant
- Labor Costs
Labour costs include salaries, wages, benefits, and payroll taxes. Generally, labour costs should be between 25% and 35% of total sales.
- Overhead Costs
Overhead costs include rent, utilities, licenses, permits, insurance, marketing, and other general expenses. These costs vary widely but should typically be around 20% to 25% of total sales.
- Prime Costs
Prime costs are the sum of food costs and labour costs. A good benchmark for prime costs is to keep them below 60% to 65% of total sales.
Calculating Total Operating Costs
- Food Costs: 25% to 35% of total sales
- Labor Costs: 25% to 35% of total sales
- Overhead Costs: 20% to 25% of total sales
- Other Costs: Varies (e.g., marketing, maintenance, etc.)
Example Calculation
Assume a restaurant has monthly sales of ₹10,00,000. The operating costs might look like this:
- Food Costs: ₹3,00,000 (30%)
- Labor Costs: ₹2,50,000 (25%)
- Overhead Costs: ₹2,00,000 (20%)
- Other Costs: ₹50,000 (5%)
Total Operating Costs: ₹8,00,000 (80% of total sales)
Net Profit: ₹2,00,000 (20% of total sales)
By carefully managing these costs and keeping them within recommended percentages, you can help ensure your restaurant business’s financial health and success.