Nobody likes math, and nobody likes equations. Unfortunately, equations are a vital part of food service cost control. Here’s a short list of necessary equations for food cost.
Maximum allowable food cost
A. In dollars: Food sales – Profit goal – (Labor costs+operating costs)
B. As a percentage of sales: [The number from A] × (Food sales)
These equations are to calculate the maximum food cost that your business can sustain before it starts eating away at your profits. In order to know this, you have to know your total sales, your profit goal, your labor costs, and your operating costs. So, this is easiest to calculate going backwards, or by using the data from previous months to see if your previous food costs were too much.
Food cost calculations
Once you know the maximum food cost that your business can sustain, you need to find out if the food costs that you’re running are below or above the maximum. You should calculate two food costs:
Actual food costs
The cost of all the food that’s vanished from your inventory over the specified period of time. This covers food that’s been lost for any reason (theft, spoilage, waste, usage).
Ideal food costs
C. In dollars: Recipe cost × number of items sold
Equation C assumes that the only food that was lost was the food that was sold. Of course, that’s never true, but if the actual is way bigger than the ideal, you need to ask yourself why that’s the case. Where is your food going, if it’s not being sold?
Prime food cost
D. Prime actual food cost: actual food cost + cost of direct labor in preparing food
E. Prime ideal food cost: (Recipe cost + labor cost) number of items sold
Some of the food you sell requires a lot of preparation before it’s ready to be eaten. In that case, it’s worthwhile to include in your calculations the cost of the labor involved in preparing the food. This will allow you to make educated decisions about which items you should buy pre-made, or even take off your menu altogether.