You might have heard about the importance of a food cost calculator, but how does it actually help you? Your end goal isn’t to figure out how much your food costs. It’s to boost your profits by setting smart prices and ordering in the right quantities. Here’s how to use your food cost calculator to get there.

How to Calculate Food Costs

The first step is to get the cost of each menu item you sell. That’s not so easy when you’re talking about potentially dozens of ingredients that could each be from a different vendor. Using a food cost calculator makes it easy to organize all of this information and quickly calculate a final cost.

1. Get out your recipe book and enter the amount of ingredients in each dish.

2. Enter the unit price for each ingredient based on the prices you pay your suppliers. Remember to adjust for any differences in units. For example, if you buy chicken at $4 per pound and use four ounces in your recipe, divide by 16 for a $0.25 per ounce unit price.

3. Multiply the unit price by the quantity for each ingredient.

4. Add up the total cost for all of your ingredients for that dish.

The process can be a bit tedious, but keeping it all in a spreadsheet will help you stay organized and make updating prices easy. You’ll then be able to use that information to make smart business decisions.

Using Food Costs for Smart Pricing Decisions

The average restaurant profit margin is only six percent. That makes it critical to get your pricing right because even small mistakes could mean taking a loss.

Industry experts typically recommend that food costs make up 28 to 35 percent of the menu price. Food costs plus labor costs typically combine for 50 to 75 percent of the menu price. After that, you need to cover rent, electric bills, other overhead, and profit for the owners.

Based on that information, your minimum menu price should be your food cost divided by 0.35. You can then decide if you want to adjust from there based on market research, customer demand, your actual overhead expenses, and other factors.

Using Food Costs for Better Ordering

Once you have your food costs list, you can turn it into an ordering guide. This will help you avoid waste and boost your margins.

The key thing to remember is that bulk buying is not necessarily the best. Volume discounts don’t help if you’re wasting more food than the discount or if you’re sacrificing quality by using frozen instead of fresh ingredients. By knowing exactly how much food you need to create your menu for the week, you can know exactly how much to order.

You can also use your food costs to decide where to focus on increasing your margins. This might be by continually checking for better prices on your most-purchased items while spending less time price shopping small purchases. You may also look to substitute expensive ingredients that aren’t a core part of your dishes.

What you choose to do isn’t important. The fact that you’re using data to make informed decisions, even if you choose to accept higher costs, is what will help boost your profit margins.

Predicted vs. Actual Food Costs

Keep in mind that food cost calculations are useful information, but they aren’t an exact science. The real world will almost never match your projections.

Rainy weather might decrease demand for a few days, a picky customer might send a dish back, or a refrigerator might go out. For this reason, many restaurants choose to add a waste percentage to their food costs to ensure that unavoidable waste is built into their menu prices.

Once you know what your food should cost, constantly monitor for variances between your predicted and actual food expenses. This will let you know when you need to make adjustments whether that’s in your calculations or in how your kitchen operates.

Download a Food Cost Calculator

If you’re ready to boost your profits, start your food cost calculations now. Sourcery has a free, easy-to-use food cost calculator that can give you the answers you’re looking for in just minutes.