5 Tips to Reduce Food Costs in Your Restaurant
Ingredient costs—commonly referred to as "food cost"—are a critical metric that every restaurant owner and manager should monitor closely. Neglecting this can lead to unnecessary expenses and financial strain. This guide will help you understand where to find relevant data and, most importantly, how to reduce these costs.
What Is the Ideal Food Cost?
While the ideal food cost varies depending on the type of restaurant, menu offerings, and business model, it typically ranges between 25% and 35%.
Maintaining a food cost below 30% is generally considered a good target, as it allows for reasonable profit margins without compromising quality.
However, it is always important to take into account the specific conditions of the company and to regularly monitor and optimise the food cost.
There are always improvements to be made. But to improve it, you have to measure it!
Maintaining a food cost below 30% is generally considered a good target, as it allows for reasonable profit margins without compromising quality.
However, it is always important to take into account the specific conditions of the company and to regularly monitor and optimise the food cost.
There are always improvements to be made. But to improve it, you have to measure it!
How to Calculate Food Cost
Simply put, food cost indicates the expenses your establishment incurs for ingredients needed to prepare the products you sell (meals and beverages).
This metric is usually expressed as a percentage of ingredient costs relative to sales, calculated using the following basic formula:
This metric is usually expressed as a percentage of ingredient costs relative to sales, calculated using the following basic formula:
This percentage shows how much of your revenue is invested in ingredients, indicating your food cost. The overall food cost calculated using the method above is only an estimate, as it doesn't account for your inventory levels.
This metric can also be calculated at various levels, including considerations for inventory, as detailed in our food cost guide.
This metric can also be calculated at various levels, including considerations for inventory, as detailed in our food cost guide.
For more examples, including those from practice (restaurants, cafes, pubs and bars) + drink cost calculations, see our PDF guide to cost calculations
Ideal vs. Actual Food Cost
By calculating the plate cost of individual products, you can determine the overall "ideal" food cost based on your recipes.
In other words, this is the food cost you'd achieve with 100% efficiency in adhering to prescribed recipes. However, as you likely know, this goal is somewhat utopian.
You can then compare this ideal food cost with the actual food cost calculated based on real ingredient expenses and inventory levels, as previously demonstrated.
This comparison gives you an idea of how (ine)efficient your raw material processing is.
If your actual food cost is significantly higher than the ideal food cost calculated from the recipes, this points to possible inefficiencies in processing or wastage of ingredients.
By calculating the plate cost of individual products, you can determine the overall "ideal" food cost based on your recipes.
In other words, this is the food cost you'd achieve with 100% efficiency in adhering to prescribed recipes. However, as you likely know, this goal is somewhat utopian.
You can then compare this ideal food cost with the actual food cost calculated based on real ingredient expenses and inventory levels, as previously demonstrated.
This comparison gives you an idea of how (ine)efficient your raw material processing is.
If your actual food cost is significantly higher than the ideal food cost calculated from the recipes, this points to possible inefficiencies in processing or wastage of ingredients.
Where to Monitor Food Cost Data
When it comes to technological solutions that enable you to store and work with food cost data, there are several options:
Universal Spreadsheet Software
The most versatile tool where you can work with food cost data is both loved and hated, good old Excel.
While working with spreadsheets is often the last thing people in the hospitality industry want to spend time on, monitoring financial indicators like food cost is crucial for your business.
However, building and maintaining such a spreadsheet is time-consuming, raising questions like:
"What should it look like?"
"How do I build a scalable spreadsheet?"
"Will I have to redo it in a month?"
Spreadsheet tools like Excel are a good starting point, especially if you're just beginning to measure indicators. Thanks to their flexibility, you can work with data in any way, and maintaining a basic overview of sales and costs takes only a few hours a week.
Dedicated Technological Solutions
If your business is growing successfully, and you're dealing with increasing volumes and numbers of suppliers, or even opening additional locations, you may reach a point where managing and maintaining spreadsheets becomes increasingly time-consuming and demanding.
At this stage, many busy owners and managers welcome as much automation as possible in monitoring their business's financial metrics. This automation is offered by technological solutions tailored for hospitality businesses, such as Dishboard.
Dishboard automatically calculates metrics like food cost based on cost data it reads from uploaded invoices and receipts, and sales data that integrates directly from the POS system.
Universal Spreadsheet Software
The most versatile tool where you can work with food cost data is both loved and hated, good old Excel.
While working with spreadsheets is often the last thing people in the hospitality industry want to spend time on, monitoring financial indicators like food cost is crucial for your business.
However, building and maintaining such a spreadsheet is time-consuming, raising questions like:
"What should it look like?"
"How do I build a scalable spreadsheet?"
"Will I have to redo it in a month?"
Spreadsheet tools like Excel are a good starting point, especially if you're just beginning to measure indicators. Thanks to their flexibility, you can work with data in any way, and maintaining a basic overview of sales and costs takes only a few hours a week.
Dedicated Technological Solutions
If your business is growing successfully, and you're dealing with increasing volumes and numbers of suppliers, or even opening additional locations, you may reach a point where managing and maintaining spreadsheets becomes increasingly time-consuming and demanding.
At this stage, many busy owners and managers welcome as much automation as possible in monitoring their business's financial metrics. This automation is offered by technological solutions tailored for hospitality businesses, such as Dishboard.
Dishboard automatically calculates metrics like food cost based on cost data it reads from uploaded invoices and receipts, and sales data that integrates directly from the POS system.
Overview of food cost and other key metrics in Dishboard
What to Do When Your Food Cost Is Too High?
By now, you already know what food cost is, what it should be, how to calculate it, and where to track it.
If you’ve just discovered with horror that your food cost is much higher than you'd like, don’t panic — it’s in your hands!
There are several ways to reduce and optimize food cost, which we’ll break down below.
1) Regularly Review Your Menu and Eliminate Poor-Performing Items
Do you have menu items that aren’t selling as well as you hoped? Or items that do sell, but have a high food cost?
It’s time to revise your menu.
Simplifying your offer to focus on popular and profitable dishes helps reduce ingredient inventory and focus your effort on items with the highest margins.
When you know the plate cost of every item along with its sales data, you can identify the best “margin-to-sales” ratio dishes and prioritize them on your menu.
For dishes your customers love and you don't want to remove, consider raising the price slightly to ensure a healthy margin.
You might be surprised by how much these seemingly small changes can affect your costs and profit!
2) Negotiate with Suppliers and Compare Prices
One of the easiest ways to cut food cost is to take a closer look at your suppliers and ingredient prices. Buying at better rates can lead to significant savings.
Make use of volume discounts, regularly compare offers from different suppliers, and don’t be afraid to negotiate better terms. Even small adjustments can lead to noticeably more efficient purchasing.
3) Optimize Inventory Management
Reduce the amount of ingredients you keep in stock. This helps eliminate waste and lowers the risk of spoiled inventory.
A simple but effective method is implementing the FIFO system (First In, First Out), ensuring older stock is used before newer deliveries. This reduces the chance of having excess unused goods.
4) Standardize Portions
If you want to avoid money slipping through the cracks due to incorrectly prepared meals, setting precise portion sizes and weights is essential.
Accurately measuring ingredients not only improves consistency in dishes but also prevents overly high ingredient costs. Make sure every team member knows the portion standards for each dish to avoid waste.
5) Train Your Staff and Prevent Waste
Even with solid systems in place, waste can still happen if staff don’t know how to handle ingredients properly.
Regular training focused on ingredient handling, portioning, and efficient meal prep will help you significantly reduce losses.
Another area where staff training can add value is upselling.
For example, if you know that coffee and desserts generally have higher margins than main courses, you can highlight these items on your menu — and also train your staff to systematically offer them to guests. This will boost sales of higher-margin products and, as a result, your overall profits.
👉 How Automat Matuška saves 35 hours a month and reduces pour cost with Dishboard
If you’ve just discovered with horror that your food cost is much higher than you'd like, don’t panic — it’s in your hands!
There are several ways to reduce and optimize food cost, which we’ll break down below.
1) Regularly Review Your Menu and Eliminate Poor-Performing Items
Do you have menu items that aren’t selling as well as you hoped? Or items that do sell, but have a high food cost?
It’s time to revise your menu.
Simplifying your offer to focus on popular and profitable dishes helps reduce ingredient inventory and focus your effort on items with the highest margins.
When you know the plate cost of every item along with its sales data, you can identify the best “margin-to-sales” ratio dishes and prioritize them on your menu.
For dishes your customers love and you don't want to remove, consider raising the price slightly to ensure a healthy margin.
You might be surprised by how much these seemingly small changes can affect your costs and profit!
2) Negotiate with Suppliers and Compare Prices
One of the easiest ways to cut food cost is to take a closer look at your suppliers and ingredient prices. Buying at better rates can lead to significant savings.
Make use of volume discounts, regularly compare offers from different suppliers, and don’t be afraid to negotiate better terms. Even small adjustments can lead to noticeably more efficient purchasing.
3) Optimize Inventory Management
Reduce the amount of ingredients you keep in stock. This helps eliminate waste and lowers the risk of spoiled inventory.
A simple but effective method is implementing the FIFO system (First In, First Out), ensuring older stock is used before newer deliveries. This reduces the chance of having excess unused goods.
4) Standardize Portions
If you want to avoid money slipping through the cracks due to incorrectly prepared meals, setting precise portion sizes and weights is essential.
Accurately measuring ingredients not only improves consistency in dishes but also prevents overly high ingredient costs. Make sure every team member knows the portion standards for each dish to avoid waste.
5) Train Your Staff and Prevent Waste
Even with solid systems in place, waste can still happen if staff don’t know how to handle ingredients properly.
Regular training focused on ingredient handling, portioning, and efficient meal prep will help you significantly reduce losses.
Another area where staff training can add value is upselling.
For example, if you know that coffee and desserts generally have higher margins than main courses, you can highlight these items on your menu — and also train your staff to systematically offer them to guests. This will boost sales of higher-margin products and, as a result, your overall profits.
Food Cost & Dishboard in Practice
If you're curious how a financial management tool like Dishboard can help you, read the story of restaurant and bar Automat Matuška, where they cut both their food cost and spreadsheet time:👉 How Automat Matuška saves 35 hours a month and reduces pour cost with Dishboard
Do you want to achieve equally great results in your own hospitality business?
Tell us your story and we’ll create a tailored solution for you!
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