It should be obvious that any business can only thrive if they make more money than they spent, but when talking about restaurants, it becomes especially important to understand what the cost of food is and how to price the menu accordingly.
It should be obvious that any business can only thrive if they make more money than they spent, but when talking about restaurants, it becomes especially important to understand what the cost of food is and how to price the menu accordingly. Determining the food cost for a restaurant allows the business to create a guideline to follow, or risk going out of business; something crucial for restaurants that run on thin margins.
To understand what food costs percentages are and how exactly they are relevant to pricing, we have to talk about the nature of food costs. Food is something that can easily change price on any given day, shortages and high demand can raise the cost of food significantly and that will eat into a restaurant's profits. That is why a restaurant must be keenly aware of how much it costs to prepare any given dish so that they price it accordingly and give themselves enough room to worry about competitor prices and food price surges.
We also have to talk about how to calculate food cost, the formula for this is actually very simple to find but it is also noteworthy that the answer should be expressed in a percentage since that will be better to express what exactly is going on with profits in the restaurant. To find the answer we must take the total sales minus the cost of goods sold and that will equal the total profit; multiply that number by 100 to get a percentage. The ideal percentage that a restaurant should try to achieve is somewhere around the 28% mark.
As previously mentioned, restaurants must be able to keep track of the food costs, not just as a constant but rather a guideline that must be constantly monitored and adjusted according to any changes that occur to the market price of food and other outside variables. For this reason, a successful restaurant must keep track of all their numbers: food costs, sales, profit, spending targets, etc.
Doing this will prevent a restaurant from unknowingly walking straight into bankruptcy due to poor management. It is also wise for a business to create weekly or monthly goals that will incentivize the company to lower food costs by finding the actual number of costs.
It may seem that keeping track of so many things is a hassle, but the only way for a business to succeed is to ensure that they are prepared for any situation that they may encounter. Learning how to calculate food cost is truly a necessity for a restaurant to be able to grow and provide improved service to its customers.
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