How to Calculate Your Food Cost Percentage

How to Calculate Your Food Cost Percentage

 

 

 

 

Video Transcript.

 

Following on from the menu costing spreadsheet that we sent out recently or you may have downloaded with regard to working out what your food cost percentage is, I’ve had a couple of questions from people about asking “how can we work out what our current food cost percentage is based off the P&L?”

 

So in this quick video I’m going to walk you through a very easy calculation to work out where your current food cost percentage is, and show you how you can then take that and work out what your current cost of goods is as well.

 

Two fairly important metrics that you should be looking at all the time, although there are quicker ways of doing it than going through the P&L, this is a good way of looking at it.

 

The thing to bear in mind with this is if there’s cash coming out of the business, you need to have a record of that. You need to know how much has come out in order to add it back into the figures that you’re taking from the P&L to give you a true figure. So if you don’t have a record of that, I suggest you start keeping one or keep track of it so you can really have a clear idea of exactly how the business is doing. Otherwise you’re kind of flying blind.

 

We do have another spreadsheet that we use for that so if that’s something that’s of interest to you, just post in the comments below and we’ll make sure that we get one of those out to you. And there is a video accompanying that as well, just to walk you through how you can track all of the expenses and all of the income, cash and otherwise, to make sure you know exactly where your cafe’s at at any one time with those key metrics.

 

 

So moving on then, looking at the food cost percentage from the P&L perspective. For the purpose of this we’re going to be using this column here, so the actual June 18 column. And down here, what we’re going to do basically is we’re going to go through and from this, to start with, we’re going to be looking at what was the income?

 

What’s the net income for the business for the period that we’re looking at? So we’re going to take every line here, so the main sales line here. In addition to those you can see on this particular P&L there’s income from Uber and Menulog and so on, so we’re going to include that. We’re going to add all of those up.

 

 

Once we’ve done that, we’re going to look at what was the food cost in relation to generating those sales. And you can see there, in the cost of sales column there, we’ve got cost of goods, food combined, and also cost of goods sold. So that doesn’t necessarily need to be on two lines. It’s just the way that these people have decided to run things through for their accounting purposes. But it could all be under one line.

 

 

Basically what you’re looking for here is what were the food costs involved in generating the income in the top line. So once you’ve got those numbers, it’s just really a case of taking that number.

 

How to Calculate Food Cost Percentage

 

So to work out what the total food costs were and then you’re going to divide that by the net sales, what the total net sales were, and that was from both of those rows previously. That will give you a percentage figure or a figure here of 0.3567. You then multiply that by 100. It’ll give you 35.67. And that will then show you that your food cost is at 36%. So hopefully that makes sense.

 

Basically you’re making sure you’ve got all of your food costs captured and all of your sales captured.

 

Once you’ve got those figures, you’re going to divide the food cost by the net sales. And then when you get that figure, just multiply it by 100. That figure then is your food cost percentage. So in this instance for the figures that we just looked at on the previous sheet there, so on the P&L here.

 

So you can see with the takings there, all I’ve done is take out the interest income of $837 to give us the $701,000 of income. And in the row below you can see I’ve excluded the commission expense for the deliveries, so I’m just looking at the food costs for this purpose. So that’s where those figures have come from. Fairly straightforward calculation.

 

How to work out food cost percentage

 

Now, if you want to work out what the cost of goods are, which is obviously a very important metric as well, then in addition to the food costs you need to add things like packaging and Uber, any expenses for delivery partners or anything else. Any other costs associated with providing that product, that food to the end customer.

 

Calculate your food cost percentage

 

So at this point you’re not going to include things like wages, labour, rent, anything else like that. It’s purely the cost of the food, any packaging and any delivery costs associated with it. You take the same net sales figure and you do the same calculation, so you’re going to divide that figure by the net sales and that will then give you a cost of goods percentage.

 

So hopefully that all makes sense. If you do have any questions, feel free just to drop them in the comments below. Always happy to try and help out and make sense of this if I can for you. So feel free to let me know if there’s anything you’re not sure about. Good luck, and let me know how you get on.

How to increase Cafe Profits - Menu Costings

How to increase Cafe Profits – Menu Costings

One of the biggest factors when working out the potential sale price of your café will be the profitability.

 

Whatever stage you are at whether you are on the market now or just wanting to make plans to sell further down the track then this is a good exercise to go through.

 

Periodically costing out your individual menu items and dishes puts your mind at rest that each item that you are selling is priced right and making the correct margin.

 

The process of going through your supplier invoices will also force you to check what you are paying for key ingredients and may help you pick up on price rises that you had not been aware of.

 

Costing out each item is also a good way to check current portion sizes and make sure that staff are all aware of correct amount of each ingredient that they should be using for each dish.

 

Being aware of you highest margin lines will also help you when it comes to knowing what you can offer as a promotion or special and which dishes you and your staff should be pushing the hardest.

 

This video shows how a simple spreadsheet like this can make the process quick and painless, it will also give you a reference to check back against when you make any changes to ingredients, suppliers or prices.

 

Don’t feel you need to cost out all of your dishes at once, just pace yourself and start with the highest selling lines.

 

If you have never done this or not done it for some time then I guarantee its going to be an eye opener!

 

I hope this helps, feel free to comment below or get in touch if you need any help.

 

Suggested Reading - Rework

Suggested Reading – Rework

 

 

This weekend I managed to get some quiet time just to sit and read which was a much needed treat.

I have a stack of books lined up that I have ordered recently but just don’t seem to have had time to get through them. Of the 5-6 books I have in the queue I chose to read Rework by Jason Fried and David Heinemeier this weekend.

These guys are from the company 37 Signals which behind software such as Basecamp, Campfire and Highrise to name a few.

This is a really easy read that is well put together and challenges the way that you think about business. As with all books, courses, seminars etc I always think  that if you can take a away one or two things then its been time well spent.

I have taken several ideas from this book which for the couple of hours invested in reading it, highly recommended.

Rework by Jason Fried