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As a food business owner, it’s important to have a handle on your costs. Conducting a food cost analysis can help you understand exactly how much you’re spending on ingredients, and where you may be able to make changes to increase efficiency and profitability.
Looking for other steps to mastering the art of menu planning?
In this beginner’s guide, we’ll go over the steps for conducting a food cost analysis, provide some examples of how it can be used in action, and discuss some tips and questions to consider when analyzing your food costs.
Food cost analysis is the process of calculating the cost of each ingredient in a menu item and determining the overall food cost percentage for a business. This percentage represents the amount of money spent on food and beverage items as a percentage of the total sales for those items. By understanding your food cost percentage, you can make informed decisions about menu pricing, ingredient purchases, and overall profitability.
A restaurant determines that the food cost percentage for one of its menu items is too high and decides to adjust the portion size to reduce the cost.
For example, let’s say a restaurant has a menu item that consists of a beef patty, lettuce, tomato, and bun. The cost of the beef patty is $2, the lettuce is $0.50, the tomato is $0.75, and the bun is $1. The total cost of the ingredients for this menu item is $4.25.
The restaurant has determined that it wants a food cost percentage of 30% for this menu item, so it sets the sale price at $14.17 ($4.25 / .3). However, after running the numbers, the restaurant finds that the food cost percentage for this menu item is actually 35%. To bring it down to the desired 30%, the restaurant decides to reduce the portion size of the beef patty from 6 ounces to 5 ounces. This reduces the total cost of the ingredients to $3.50, bringing the food cost percentage down to 25%.
A catering company conducts a food cost analysis and realizes that it can save money by bulk purchasing certain ingredients.
A catering company offers a variety of sandwiches on its menu, including a turkey and cheese sandwich, a roast beef and cheddar sandwich, and a veggie sandwich. After conducting a food cost analysis, the company realizes that it is spending a lot of money on individual packages of lunch meat, cheese, and vegetables.
To save money, the company decides to bulk purchase these ingredients and also implements a better inventory management system to reduce waste and spoilage. By making these changes, the catering company is able to lower its food cost percentage and increase its profits.
This will give you a baseline to work from and allow you to identify any menu items that have a significantly higher or lower food cost percentage.
If so, consider whether changes can be made to reduce the cost of these items, such as adjusting portion sizes or negotiating better prices for ingredients.
This can be a simple way to lower costs without affecting the overall sales price of the menu item.
By negotiating better prices with suppliers or bulk purchasing certain ingredients, you may be able to lower your overall food costs.
It’s important to consider the potential impact on profits when making changes based on food cost analysis.
In conclusion, food cost analysis is a valuable tool for a food business to optimize profits and make informed decisions about menu pricing and ingredient purchases. By regularly conducting food cost analysis, a business can identify opportunities to reduce costs and increase efficiency. By keeping accurate records, regularly reviewing and updating menu prices, using consistent portion sizes, and considering the potential impact on profits, a business can effectively use food cost analysis to make informed decisions that will improve profitability.
Here’s a list of other menu development and pricing guides that you can read: