Can you easily calculate your food cost?

I come across bar and restaurant owners all the time that are unable to calculate their food cost/margin or their beverage cost/margin. These simplest of calculations can be done on the back of a napkin. I’ll try to explain each aspect of it here as simply as possible:

Whether you run a steak and seafood restaurant, a family restaurant, a pub or a martini bar, you need to know what your food cost is.

The basic food cost calculation itself is simple:

Opening Inventory Value + Cost of Purchases  – Closing Inventory Value = Usage Amount

Usage Amount / Sales Revenue = Cost of Goods Sold (%)

This formula can be used to calculate your food cost anytime you want to: monthly, weekly or daily. We will use this formula to calculate a weekly food cost.

First, you need to collect the information that is required to do your food cost calculation.

You will need to have done a physical inventory of your stock, and you will need to add up your purchases for the week. You will also need to have your food sales for the week available.

Your opening inventory is the dollar value of what you began your week with. If you do a regular food cost calculation, your opening values will be the last closing value you had.

Your purchases amount is the dollar value of whatever you purchased during the week.

Your closing inventory dollars is the value of what is still in stock at the end of your week.

When you add your opening inventory and your purchases, you calculate the total product that you purchased for the week. When you subtract your closing inventory, you end up with your usage for the week.

Because your closing inventory is still in stock, you need to subtract it from the equation, because even though you purchased it in that cycle, you haven’t used it yet.

Then you take your usage and divide that by your food sales for the week. The percentage you arrive at is your food cost.

Here is an example of how this calculation works:

Opening Inventory:     $10,300

Purchases:                   $5,500

Closing Inventory:       $8,200

Food Sales:                  $22,000

Using our formula, your food cost would be calculated in the following way:

$10,300 + $5,500 – $8,200 = $7,600

$7,600 / $22,000 = 34.55 %

In this example, you began with $10,300 of food product in stock. You purchased $5,500 through the course of the week, and at the end of the week you did a physical inventory and determined that you still have $8,200 of product in stock.

Therefore, your usage for the week was $7,600.

By dividing your usage into your food sales for the week, you see that your food cost is 34.55% and your profit margin is 65.45% as a result.
I hope this helps.

Why Toothpaste Plays a Big Role In Your Bar

toothpasteAn American Politician once said: “Once the toothpaste is out of the tube, it’s hard to get it back in!” when referring to the Watergate scandal.

What, you might ask, has that got to do with running a bar or a restaurant? Well I’ll tell you.

Do you remember the last time you were down to the end of the tube of toothpaste and you wanted to make sure you got every last bit out out of it? Partly because you (read I) were too lazy to go to the store but partly because you didn’t want to throw it away when there was at least one more day’s worth clinging to the sides…. Continue reading