Food and Beverage cost and pricing calculator
The Formula
Food Cost % = (Beginning Inventory + Purchases Ending Inventory) / Food Sales
Memorize this
FC% = (BI + P - EI) / S
Food cost is calculated by taking beginning (opening) inventory for the period and adding all of your purchases to that number. Subtract the ending (closing) inventory number. This gives the theoretical value of what used that period/ week in product. That number is divided by sales and a percentage of sales is calculated for the cost.
Food and beverage is an essential component of offering guests a good experience, one they want to repeat. A location-based entertainment (LBE) facility with a well-executed food and beverage (F&B) offering will not only increase per capita F&B sales (sales per guest per visit), but will also increase other sales by extending the guests length-of-stay. In fact, F&B can actually be a driver of visits come for the food and stay for the fun. As important as F&B is to the guest experience equation, it is just as important to profitability. When it comes to
F&B profitability, revenue is only one part
of the equation.
The other part of the F&B profit equation is prime cost. LBEs have the potential to achieve per capita F&B sales of $5 or greater. With properly managed prime costs, F&B sales can add $2 in profit for every guest. Prime cost is the total cost of goods sold (COGS). That includes food, beverages and related paper products such as disposable cups, napkins, etc., plus the gross labor cost for all F&B staff.
Labor cost not only includes payroll, but payroll taxes, workers comp, medical insurance and other employee benefits. For a foodservice facility, a good benchmark for prime cost is
60% or less of F&B revenue. This means the total cost of food, beverage, associated paper goods and all labor costs should not exceed 60% of revenues.
It is important to track prime cost on a regular basis, as it includes the two most controllable costs labor and cost of goods sold. However, we often find that LBE operators: Dont track labor costs separately for F&B, but rather lump all labor together for their entire facility, or Track labor as a percentage of F&B sales only on a monthly or less frequent basis, or Rarely track F&B COGS (Cost of Goods Sold) except on an annual basis.
The
problem with such infrequent tracking of prime
cost is that months can pass before the operator
recognizes that costs may have exceeded the
target benchmark. Theres no way to go back and
correct costs at that point, so it represents a
permanently lost profit opportunity. For
example, maybe the costs of some raw products
have increased and driven up food costs. If you
wait for months to find out, then you lost
the opportunity to either adjust menu prices or
find less expensive substitute products. Perhaps
some new employees havent been properly trained
and arent following proper portion control.
Maybe your F&B manager hasnt been efficiently
scheduling employees. Waiting a month or longer
to find out that labor costs are 40% instead of
30% means your costs have been higher than
necessary. Or perhaps an employee has been
stealing some food product out of your walk-in
on a regular basis. Waiting months to calculate
COGS (Cost of Goods Sold) to finally learn
things are out of kilter can mean you let
thousands of dollars walk out the back door
(literally). When it comes to labor costs,
I
recommend that its percentage of revenue be
calculated daily.
Daily, yes, daily! It
isnt that hard to set up your bookkeeping
system to do this. Each morning, the F&B manager
gets a report on what the labor percentage was
for the previous day. That gives you the
opportunity to learn how to improve through
immediate feedback. If you wait weeks or months
to get this information, you will have forgotten
what happened on particular days in terms of
scheduling to cause the high labor cost. If you
gets a report the next morning, however, you can
reflect on the previous day and perhaps learn
what you can do differently to improve the labor
percentage in the future.
The other
advantage of daily reporting is it sends a loud
and clear message to your manager that
controlling labor cost is darned important. The
old adage, That which gets measured gets
attention, is very true. Labor is your most
easily controllable cost, so it only makes sense
to set up a reporting system that helps your
managers stay focused on controlling it.
Calculating the COGS part of prime cost also
needs to be done on a frequent basis. Most chain
restaurants do it weekly. At a minimum, it
should be done bi-weekly. Weekly or bi-weekly
cost reporting will change the attitudes and
behavior of your kitchen staff, as it creates
awareness of the importance of controlling F&B
costs. It also lets employees know they are
being held accountable. If there is a problem,
you will know about it quickly and can respond
accordingly. Regular food costing will usually
result in a 2% to 4% or more reduction to
COGS.(Cost of Goods Sold) Again, that which gets
measured gets attention. Calculating COGS (Cost
of Goods Sold) requires a physical inventory of
all F&B supplies on hand and a calculation of
their costs. This takes some time, but with a
well-organized stockroom and by setting up
simple inventory worksheets, a physical
inventory can easily be done in an hour or so.
Conducting regular physical inventories also
requires the discipline of setting a fixed
scheduled time for it.
When auditing the
operations from other companies, or even I ask,
I found that the menu prices have not been
appropriately calculated to produce desired
profit margins. I frequently find COGS (Cost of
Goods Sold) running at 40%, 50% or greater of
their F&B sales. I often find that they have
priced their menu items under the market for
similar type restaurant operations, sometimes
for even less than other sells those items.
Never price your menu items cheaper than
comparable restaurant prices. Menu prices that
are too low can actually hurt sales, as guests
will be suspicious that the food quality is low,
based on the price.
Actually, with good
quality products and display cooking, such as
preparing foods right in front of customers, you
can command a premium price over comparable
restaurant operations. The public looks at it as
more of a value equation than just an absolute
price consideration when purchasing quality
prepared foods.
Properly setting menu
prices requires a detailed cost analysis of each
menu item, making sure the cost includes every
ingredient and paper product used for that item.
For example, for a sausage, the cost
analysis should include not only the sausage and
roll, but also the cost of condiments, the paper
plate and napkins. Then a factor needs to be
added for waste food that spoils, dropped food
that is thrown away, and prepared left over food
that cant be saved at the end of the day. Take
the total cost of the menu item and divide it by
your desired COGS.(Cost of Goods Sold). Lets
say the total cost of the gourmet sausages works
out to $0.76 and you want to maintain a COGS of
30%. You divide $0.76 by 30% to get the
target-selling price of $2.54. But you dont
stop there. If sausages of a comparable quality
are selling for $2.89 in your market, you set
the price at $2.89, which gives you a 28% COGS.
A worksheet for this example is shown below.
I have found that in addition to supplying labor costs and COGS to managers, taking an open-book approach of sharing this information with all F&B staff greatly improves performance. I advise where the F&B staff will see them everyday. One can show the weekly labor percentage and the other the weekly or bi-weekly COGS. The vertical axis should show ascending percentage and the horizontal axis should indicate the time periods. The target range should also be shown.
It gives them immediate feedback on how they are performing. Staff members have far more control of COGS than anyone else, because they handle portion control. They create waste. They are doing (or not doing) the up-selling to more profitable food items. The graphs will help them understand why proper portion control, minimizing waste and up-selling are so important. It lets the F&B staffers know they are regularly being evaluated in these performance areas. It also lets them know that if they steal, their theft will quickly show up in the performance results. And if their hours need to be cut back, they can better understand why -- that it is necessary from a business profitability standpoint and is not some arbitrary management decision.
Controlling prime cost requires commitment, procedures and discipline. When executed properly, you will have a continuous stream of profits from your food and beverage sales. B t w, my thanks to White Hutchinson. Here are some of my software examples for food calculation. They should be available in each operation / F&B department.
