hey guys my name is wilson today we're
going to be talking about how do you
calculate your food cost now first and
foremost why is food cost so important
there are basically three types of costs
that would determine whether your
business goes bankrupt or whether you
would be having a thriving restaurant
business the three types of expenses are
your rental costs your labor costs and
your food costs so these three things
adds up to close to 75 to 90
of your revenue okay so what that means
is that if you can control
one sector and one component of this
cost you're gonna be able to maximize
the amount of profit that you can bring
home okay and in the food and beverage
world nowadays the margins are really
thin enough we're talking about five to
ten percent so what that means is if you
learn how to calculate and when you
learn how to calculate food costs you're
going to be able to better control
this item and when you can better
control this item that means that
you can have a bigger pot and bigger
profit
which is the reason why today we're
going to be talking about how are you
going to be able to calculate your food
cost so now that you understand the
importance of why food cost is so
important i also want to bring to you
the three benefits of actually
understanding it okay it is because the
first benefit is so that we can
strategize and engineer a new menu there
are items on your menu that once you
calculate the food cost you understand
and you would know that does not make
sense because these items every time you
sell one you're losing money because for
example if the cost of your burger is
like eight dollars but you're selling it
for only twelve dollars then that means
that your cost of goods is way too high
to sustain this product that means
you're not making money from this
product aside from cost of goods sold
you also need to account for your labor
your rent and everything and when you
count everything within this item it's
not making money then why are you
selling it
same thing goes with actually creating
new items
to give you an example whenever we
create ice cream flavors we always look
at we always start
from how much of a budget can we work
towards how much of a budget do we have
to create this new item so for example
if we sell our ice cream or a product a
dessert menu item that is caught
retailing for eight dollars then we know
we can't spend more than two dollars
whenever we're testing this new product
whether it be the toppings whether it be
the ice cream base
whether it be the presentation itself
everything adding up cannot be more than
two dollars because now we understand
our food costs whereas if you do not
understand food costs you'll be putting
in tons of topping just to make this ice
cream stand out make it look super
amazing yet the cost is five dollars how
can you make any money from that you
can't which is the reason why
understanding food cost is so so
important on the same token the second
benefit of truly understanding your food
costs is that you can actually run
proper promotions and what i mean by
that is if you're running promotion so
many of us are running promotions but we
don't even know if we're making money or
not if you are every time you sell a
product every time you sell an item it's
not making money then why are you
running that promotion it's a lose-lose
game okay your clients and your
customers are so used to you running
promotions that they won't purchase from
you unless you run a promotion and at
the same time
you keep running promotions that are not
generating you any profits then what's
the point a lose-lose scenario on the
same token if you understand food costs
if you understand for example a piece of
cookie it costs you around 25 cents to
50 cents to make and you retail and you
sell it out to the public for five
dollars that's a really healthy margin
that you have and if you want to use
your cookie as a promotional item where
you know what come and buy a cookie for
fifty percent off tons of people will be
flooding in they're gonna charge them
250 yeah it takes you 50 cents to make
and you still have a ton of margins to
play with you still are able to benefit
from that and to be able to profit from
that which is the reason why you can be
very strategical when you're running
these promotions that half-price cookies
and when people come in for their cookie
they're going to order a cup of milk
which you can charge at full price and
that's a very very smart way of running
promotions all because of the fact that
you understand cost of goods sold food
costs the third and final benefit i'm
going to be sharing with you today
is that you can actually make more
profits by understanding the seasonality
of the cost of the goods that you're
buying so for example produce foods
whenever we have any summer promotions
we usually buy our strawberries or
mangoes
at the peak at the most supply
time that the produce is being
harvested we buy a ton of it and then we
cut it up and then we freeze it so then
that way we have a ample supply of
ingredients why do we do that it is
because mangoes don't always come that
cheap usually within a month time they
become more and more expensive as the
season fades on but because of the fact
that we understand that we understand
cost of goods sold we're able to
strategize buy them in bulk buy them and
store them and then now throughout the
season we can actually control costs and
thus bringing us much more profits at
the end of the day so now that you
understand why it's so important some of
the benefits and like more advanced
strategies of how to use food costs
we're going to dive right into how are
you going to be able to calculate your
food cost for your restaurant before i
do that i'm going to explain to you a
little bit more about food cost food
cost is basically usually comes in a
percentage form okay
and what i mean by that is usually it's
the cost of making that food item
it's the direct
cost okay what i mean by that is
inventory all the ingredients that it
takes to create that item we're talking
about for example if we're talking about
ice cream okay we're talking about the
cups we're talking about the napkins
we're talking about um the dry ice that
we have we're talking about the milk
we're talking about the powders the
sugar the topping these are all the
ingredients that goes into making this
item okay and on top of that we need to
add in the direct cost of preparing the
ice cream so what i mean by that is
before we actually have that ice cream
we need to create a mix a mix that we
can pour into that ice cream machine
that turns out soft-serve now for us to
create for us to have the labor to
create this box of mix that itself is a
direct
cost that goes into creating the item
not just the ingredient cost so for
example i need to have a labor i need to
find a staff to pour all the ingredients
in this bucket
blend it up and then pour into the
machine to make the ice cream for
example if it takes my staff an hour to
create this product then i would add
this hour into
our food cost as well to give you a
better example with numbers so just to
simplify everything okay in an ideal
world the ideal food cost of of how much
it takes 50 cents for the cone okay 50
cents for the milk
50 cents for making um all the toppings
and another 50 cents
for the person that creates that bucket
of mix okay and how do we get that 50
cents for the person that makes creates
that mix well
if it takes that person an hour to
create the mix and if the mix can create
let's say 30 cups of ice cream then we
can just divide 30 with that person's
hourly wage so for example if he gets
paid 10 an hour then we use
10 divided by 30 which comes out to be
30 cents then we would add that to the
cost of goods sold so for the sake of
this example we taught we said that that
is 50 cents so if you add everything up
that is two dollars
for making that cup of ice cream that
becomes your cost of goods solds that
becomes how much it costs now use that
number
divide it by how much you actually sell
the product for so for example if we
sell the ice cream for five dollars to
the public then we use two dollars
divided by five dollars to get our cost
of goods sold typically speaking cost of
goods solds should range from i would
say 15 to 30 percent 30
is the maximum that we would want for
cost of goods sold and at the end of the
day the higher the cost of goods sold
the less profit that we can make the
less profit that we can put into our
pockets so now that you understand in an
ideal world how much cost of goods solds
are for
that ice cream 20 is what we're talking
about but in reality we have not taken
into two big concerns number one is
wastage and the second one is
in an ideal world
this we don't we take out but in reality
this happens all the time these two
components food wastage and fat is
always something that's going to happen
and what i mean by that is for example
if we created a batch of ice cream and
that whole batch is 20
if we retail for five dollars how much
can we make in theory we're going to be
able to make a hundred dollars in
revenue that equates to 20
but because of the fact that you know
what uh when we're cleaning the machine
we we ended up wasting a bunch of ice
cream and in turn those ice cream that
we wasted
cannot be sold as revenue so what that
means is
maybe our revenue becomes 90
right on the same token
if i'm the the staff and my friend comes
in and then i'm like hey you know what
uh jason thanks for coming in i'm gonna
give you a free cup of ice cream
here you go but we never charged them
that means that for the same amount of
ingredient which is twenty dollars of
ingredient
i did not receive
one
order which is five dollars so that
brings down the revenue in addition to
all the wastage so you can now imagine
in reality that maybe the revenue that
we bring in is only eighty dollars
instead of a hundred dollars with this
calculation we use twenty dollars
divided by eighty dollars to guess to
get the real actual cost of goods sold
which becomes twenty five percent versus
in an ideal world a twenty percent cost
of goods sold
the reason why i'm explaining
the ideal food cost and the actual food
cost to you is because
you need to understand in theory
everything is perfect however
our job as owners we need to understand
what is realistic what is it and how we
can control the cost of goods sold so
now that we understand the two biggest
components food wastage and theft we're
gonna have to keep a lot of
close eyes to maintain and to take this
element and to prevent these things from
happening to ensure that our cost of
goods sold is at an optimal percentage
now how can we do that then we can have
better processes for example cleaning
better processes of optimizing the food
ingredients that we use better processes
to understand and to prevent people from
stealing and giving away and comping
different meals
this all acts up to to your profits so
at the end of the day you need to make
sure and why are we even calculating
food costs the reason why we're
calculating food costs is for us to be
aware of how much we're actually
spending now how do you calculate actual
food cost all you have to do is in the
beginning of the month
check your inventory at the end of the
month check your inventory again
take the difference then that's the
amount of ingredients that you've used
throughout the month and you're going to
be able to use that to benchmark it
against the revenue you're able to
generate
for each food item and then you're gonna
have a better understanding of the
actual food cost and for you to
understand it now you can manage it
properly so that way you can gain more
profits into your pockets so there you
go we just talked about the importance
of understanding your food costs we just
talked about how do you calculate your
ideal food costs versus your actual food
costs as a rule of thumb we want to be
able to aim for a
maximum 30 of an actual food cost
because anything higher you're going to
be left with no margins to play with
so many times we're actually looking at
our bank account we're like wow we're
making tons of money on paper but in our
bank account if money's not showing up
it is because of our expenses out beats
the revenue that we bring in just
because we make ten thousand dollars
doesn't mean it all goes into our pocket
we need to pay for tons of money for
rent tons of money for labor tons of
money for cost of goods sold so
our job as owners as restauranteers is
to control this cost minimize it to
below 30 so then that way we can have a
healthy margins for us to take home so i
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