Dude… What’s my food cost?
I’m continually surprised at just how many bar and restaurant owners are unaware of their food and beverage costs. Your product cost percentage is an integral piece of business data. It really ought to be at the core of any modeling you do before you even get to the business plan stage of a new bar or restaurant. But let’s say that you’ve made it this far…. How does one determine what their food and beverage cost percentage ought to be? How should I determine my pricing? How do you go about figuring out what your actual product cost is?
While there’s some generalized answers to these questions, every business is unique, with certain assets and challenges that need to be accounted for in the business model and pricing strategy. Failing to take these factors into account will lead to unreasonable expectations and lost opportunities.
Common factors that alter target cost percentages
Concept – Typically, as concepts become more upscale you can expect the cost percentage to increase. This is offset by higher check averages and increased profit per check.
Food / Alcohol Ratio – In certain situations it makes sense to take a hit to the margins in one area if you know you’ll make it up in another area. If 75% of your restaurant’s sales are wine you could afford to have lower margins on your food provided your margins on wine were solid.
Location – New York City presents its own challenges to restaurant and business owners as rents typically exceed the guideline of 10% of gross sales that business owners nationwide are expected to adhere to. Commercial properties in New York City routinely go for $50 per square foot and higher. High rent or other overhead may necessitate a lower target cost percentage to compensate.
Competition – If there’s high competition for your customer’s attention you might be forced to accept higher cost percentages to stay competitive.
Determining Product Cost
While calculating your costs isn’t especially complicated, it is rather tedious. It’s important to cost out individual items as well as your sales categories as a whole in order to make sure you’re pricing things appropriately. Accept higher cost percentages on big-ticket items in order to encourage sales.
If you’d like Express & Discard to provide your business with a detailed cost analysis, contact us for a free consultation. We’ll provide you with a detailed, easy-to-use spreadsheet that will calculate the cost of your entire inventory down to the ounce. From there we’ll look at your food and drink recipes and determine the precise cost of every dish. After that, we’ll compare this data to the money you’ve spent and the sales that your Point-of-Sale has recorded and figure out what the difference between your projected and actual costs are.