Food Costing - Menu Development in a Restaurant or Cafe

As any Hospitality consultant  will tell you, in relation to menu development, the secret ingredient for monitoring food cost is consistency. Having a consistent, 'practical system’, which enables you on a weekly basis to match your sales against your cost of goods (' COGS' = Money spent on produce and packaging to service sales.)

Having control over your menu costing and in turn your food cost percentages is a very empowering exercise and an early warning system to alert you to theft or waste.

Many blogs speak of doing a weekly stock take. Although this is the ideal scenario, actually completing this after a busy weekend and many unforeseen issues that may have arisen throughout the week. Physically calculating remaining stock down to the last kilogram on a Sunday night is not very practical in the real world and as such gets neglected or done half heartedly which of course is a Pointless exercise.

Having guidelines of percentages for running a restaurant or a cafe is very important. These percentages can vary however. For example, you might have high wages because preparing most of your food from scratch will result in reducing your food cost percentage but more labour. Or you may have more packaged items bought in and therefore lower your labour costs but a higher COGS. You will need to plan and know what each percentage should be in advance before attempting to truly realise your gross profits, net profits and fixed versus variable expenses.

Therefore, having a system where you can modify each dishes true and current cost on a spreadsheet, is a must for any modern day Restaurant or Café. I always use my costing formulas and at the push of a button can determine my exact, ‘ current market value ‘ menu costing.

Once you have the cost of goods including packaging for your dishes, you can then use a very simple equation to work out what you're selling price needs to be to determine your ideal cost of goods percentage. COGS / .33 will give you a selling price that represents a 33% COGS.

My aim is always 30% but I shall round to 33% to simplify dollar amounts in any equation.

Example: COGS or price of a dish = $5 to prepare (including packaging)
Then 5 / .33 for instance = $15.15. The Sale price required to achieve a 33 % COGS.

To keep track of this system I like to keep a journal (similar to set up below.) It's practical, fast and can easily be transferred at the end of the week to a spreadsheet if required. Pulling out your laptop in the middle of receiving goods is not very practical.

Date    Supplier name    Inv #    Amount GST

12/3/17    St George        Inv123    $ 110 None

And so forth, each entry, each week. By the end of the week you'll have a Total cost of goods. I also like to keep the items with a GST component in a separate column so the GST component can be allowed for and deducted accordingly. As this is money you can claim back on your quarterly BAS. (Business Activity Statement) so therefore is not a true expense.

Should any unusually large deliveries be received on a given week this can be divided over coming weeks to allow for a realistic COGS figure at the end of each week.

At the end of each trading week once you have a figure for total sales (minus GST of course.) It is then easy to divide your cost of goods by your total sales.

Example: Total sales minus GST = $10,000
(COGS) = $3,300

Cogs / Sales = cost of goods %
Then multiply by 100 and you get 33% cogs in this example.

As previously discussed you should have an ideal figure in percentages for your COGS, wages, rent etc.

Once you have agreed on your ‘ideal’ COGS figure, you can then monitor on a weekly basis and try and stay within a 1% variance of this figure, up or down. Some weeks your food cost might be slightly higher for a variety of reasons but what we are looking at here is an average COGS. If your menu consultant and menu costing is done correctly and your variance is greater than 1% continuously, you know then you have a problem. This could be a change of price in cost of goods received and not accounted for, over-portioning, poor food handling techniques, bad goods receiving procedures, or many other problems, including theft. This way you will know sooner rather than later and it is always easier to address a new problem than a deeply ingrained, old one!

As previously mentioned the ideal scenario is for a weekly stock take covering all items, which can number in the hundreds. That equation would look like this.

Starting inventory + purchases - ending inventory = COGS.

If you are monitoring and documenting each invoice and are able to isolate each week's spend. And you have done your menu costing and continue to hit your ideal COGS then you do not have a problem.

I personally have very strong opinions about treating a restaurant or Café as an investment and showing up each week to empty the safe. The system I mention is a very practical and convenient system for getting a quick snapshot of the figures required. This continuous assessment and some relatively cheap cameras installed for monitoring staff can give you all the answers you need.

How ever, if you are running a business as an investment or you are reading this because you have an ongoing problem regarding sales to profit ratio and don’t know how to address, then you most certainly need to dig deeper and implement a system of stock control, coupled with a correctly costed menu and proper food handling techniques. Possible, but only if executed correctly!

At Copper Pantry Restaurant and Café Consulting, my aim is to teach you from the mistakes I have made. Please check out my other blogs and drop me a line if you have any queries. Good Luck.

Best Dishes

Sean McBride