Hey, restaurant owners, operators, managers, chefs; today,
I want to talk to you about the six most important things
you need to know about food cost.
Hey, everybody. Ryan Gromfin here – author, speaker,
chef, restaurateur, and the founder of the www.Restaurantboss.com,
as well as www.clickBACON.com.
And before I talk to you about the six most important things
you need to know about food costs,
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Alright, so food cost, this is one of the things that I get emailed the most about,
I get phone calls the most about.
And over the years, I've put together a list
of the questions I get and the answers
I give and I'm going to compile this together to kind of
the six most important things that you should know about your restaurant
food costs or need to know about your restaurant food costs.
Based on your feedback, based on the questions I get
and the responses I give and just consulting in general.
So, the first is the difference between item costing and period costing.
So number one is item costing. It's a very simple formula.
All it is is the cost to produce the item
divided by the selling price.
That'll give you a decimal point, it'll give you like 0.2 or 0.25.
Just go ahead and multiply that by a hundred to get your percentage,
but this is for item costing.
Again, it's the cost divided by the selling price.
Now, I get a lot of questions about people who are like,
where's the best food cost calculator?
Do you have Excel spreadsheets for this?
How can I figure out the cost of my menu items?
Honestly, here's the answer I give.
Just do it on a scratch piece of paper.
It's not that complex.
This part is fairly simple. I mean it is complex, it's complicated I know that,
but like don't let the reason why you don't know the item
cost of a menu item,
the percentage of a menu item
be because you couldn't find the right calculator or a complex spreadsheet,
or you're waiting on some software.
Just go to your invoices,
figure out what it costs to put that item together
divide it by what you're going to sell it for,
and that'll give you the item cost and a percentage.
It's that simple. Please don't overcomplicate
it because it gets more complex as we go.
The second thing is knowing the difference being item costing and period costing.
So period cost of goods sold will be for like a week,
a month, a year, a quarter, right?
Now, it's basically the same formula,
but instead of using the cost divided by the selling price,
we're going to use total purchases for that period
divided by the total sales for that period.
Now what's important here
is that when you're talking about food costs
that you're only taking food purchases divided by food sales,
not total sales but food sales.
Also, make sure things like whisks and spatulas and chemicals
are not included in that because it's food cost.
So, if you wanted to do liquor cost,
it would be liquor purchases divided by liquor sales.
If you want to do wine cost, it would be wine purchases
divided by wine sales for a specific period of time.
Now, I know you're out there saying, wait!
There are problems here because of days of the weeks
and holidays and all these other things and you are correct.
This is where it starts to get more complicated
where people start to use inventory calculations.
Now let me first give you the inventory calculation,
which is beginning inventory
plus purchases minus ending inventory
will equal usage,
then you do usage divided by sales
to get the correct cost of goods sold.
So, if you wanted to figure out what your cost of goods sold
was or your food cost in a month,
you would take your beginning inventory value plus all of your purchases,
then take out your ending inventory value to tell you usage, right?
How much product did you use in that month,
then you would divide your usage for the month
by your sales for the month
that will give you an accurate
food cost for a period.
However, I'm going to talk about this more in another video.
I don't teach inventory for a couple of reasons,
but again, I'm going to talk about that future video.
So, if you're watching this video right when I release it, just wait a couple of weeks.
If you're watching this video a couple of weeks after I released it,
look in this playlist in the costs of goods sold playlist
or labor cost playlist or just costing playlists,
whichever playlist this is in.
I think there's a way for us to bring it up on the screen
and look for that why I don't teach inventory video.
Now, staying on here,
I talk about simple method versus inventory method.
The simple method is what I talked about earlier,
which is just the purchases divided by the sales.
Whereas the inventory is beginning inventory
plus purchases minus ending inventory.
I personally like the simple method,
but if you're going to use the simple method,
use it for a longer period of time.
One week, one month isn't enough.
You need to do this for like a three-month period or a six-month period
to counterbalance the waves in the month, right?
Days of the week, days of deliveries, etc.
However, my preferred method is a rolling method,
where we use completed weeks.
I prefer a four week rolling. So we take the last four completed weeks,
all that data and use that rather than ending it on midweek.
If that's a little too complex for you, I have some software called clickBACON.
We'll put a link below this video in the comment section where you can check out
lickBACON and we do rolling calculations for you.
It's really simple to do.
Actually, we do all of your cost of goods sold and labor calculations over there.
But anyways, let's move on now.
So the third thing is, no utilities and no labor.
That's right. No utilities and no labor in cost of
goods sold calculations.
We're going to talk about that in Prime cost video.
Again, check out the playlist, but listen to me - do not include labor,
do not include utilities in this. I've already given you the formulas,
it's just the food cost
divided by the selling price or the food purchases
divided by the sales price. That's it.
Now, this is directly related to your volume.
Here's what I mean by that.
If you are slow or you are busy,
your cost of goods sold should remain the same.
Volume fixed is a lot of things, but volume should not fix costs of goods sold.
So when I get phone calls from people that say, well, if we were just busier,
my cost of goods sold would go down. Wrong!
Maybe marginally because of less waste and things like that,
but don't think volume is going to fix this. With labor,
it's a different story, but when it comes to cost of goods sold,
you should be able to manage your cost of goods sold well enough that if you're busy,
it should remain the same or get a little better, and if you're slow,
it should remain the same but should not get substantially better or worse with volume.
Now the fifth thing that we are going to talk about here, right?
One, two, three, four, five. Yup, the fifth thing. Margin is most important.
Margin or cash contribution
is more important than percentages.
What I mean by that is if you have two items on your menu,
one is a 25% food cost and one is a 50% food cost,
it's natural to think, well, let's sell more of the 25% food cost item,
but if the 25% food cost item is a hamburger that you sell
for $10 and the 50% food cost item is a steak
that you sell for $20,
then let's think about this
- the 25% cost of goods sold or food cost on the $10 hamburger
means that it costs you $2.50 to make that hamburger.
Sorry, I skipped around there a little bit, but $7.50.
If we go to that steak, the $20 steak with a 50% food cost,
it costs you $10 to produce that steak.
You have a $10-dollar profit on that item.
So don't make all of your decisions
based on cost of goods sold only.
Don't make all of your decisions based on cost of goods sold only.
Consider margin or cash contribution as well.
Okay, now the last thing, the sixth most
important thing that you need to know about food cost is,
I don't know what your food cost should be.
I can't sit here and tell you as an expert of the industry consulting
for over ten years operating restaurants and working
with literally hundreds of clients from all over the world,
I cannot tell you what your food cost should be and
anyone that does tell you is wrong. I don't know.
Sure, there are industry averages.
We've all heard you know somewhere between 25 and 33%, great.
But I have clients with 50% food costs who are making a ton of money.
I have clients with 21-22% food cost,
who are not making money.
So I don't know what your food cost should be.
What I do know is, your goal is to maintain it or make it better.
That's it. So, first thing is, calculate it,
figure out what your food cost is for a period of time,
for either a rolling calculation or a long period of time.
Three-months, six-months, whatever. If you're going to do six-months,
then every month kick out an old month and add a new month
and figure it out and just make sure
that it's staying flat or getting better.
Lower is better, but I don't know what it should be.
Don't shoot for some target number that you randomly
heard someone tell you.
I know this video is a little complicated.
I know I tried to pack a ton into this.
I could literally do an hour on each one of the bullet points,
but I wanted to give you a brief overview of
the most common things I hear about food cost.
I'm sorry this video went long.
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And I look forward to bringing you another great video like this next week.
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