One of the best ways to socialize is to share a meal. And, restaurants are a great way to do that, share a meal and have fun with friends and family. When you own a restaurant, it is your responsibility to ensure that your customers have a joyful time without feeling the burden of the hefty bill. At the same time, it's your prerogative to ensure that you make enough profit to keep your business up and running.

The average food cost of a restaurant is one of the key indicators of its profitability. If a restaurant lets its food cost be extremely high with respect to its menu prices, the profit margins become tighter and the business may be at the risk of failing.

Calculating the average food cost per month or per week ascertains a budget, helps in determining the menu pricing for a restaurant and optimizes the prime costs as well. Prime cost is the combination of the cost of goods sold (COGS) and the labor costs. A restaurant's COGS includes food, alcohol and other beverages, packaging, and other costs associated with preparing and serving the menu items.

The average restaurant food cost is calculated by taking the total menu price and dividing it by the number of items sold. The lower the percentage of food cost, the more profitable a restaurant business is going to be.

The average food costs are the highest expense of any food business. It is one of the most important aspects of a food business, and yet it's often overlooked. Simply put, food cost is the ratio of your food inventory (cost of ingredients) and the revenue that those ingredients produce when each restaurant meal is sold (food sales).

The average food cost is usually expressed as food cost percentage. For instance, if you have an average restaurant food cost of 75 percent, you're making 25 percent profit on all sales. The smallest cutback on food cost percentage can have a huge impact on the profit margin. To ensure your business stays afloat, regular and accurate calculations of average food costs are a must.

Other determinants for calculation of profit for a restaurant business include the location, type of restaurant, and time of year. For example, the rent or the cost of maintenance of a property in a few locations are more than others, or some menu items ought to be more expensive than others because they include more ingredients or ingredients scarcely available or require more labor involvement. But if you are smartly managing the budgeting of your restaurant, these things shouldn't affect your business.

The bottomline, however, is that if you're an entrepreneur looking to open a restaurant or already running one, it's imperative to know your costs, including food. With many restaurants, the cost of food accounts for up to 30 percent of the total revenue. That's the reason being able to accurately estimate the average food costs is critical.

Usually, restaurants run on incredibly narrow margins. Even a minor change in the pricing of goods, or any alteration in the number of sales, significantly affects a restaurant business. For instance, if the price of any core ingredient goes up (as it has been the case during the pandemic), the profit margin gets hugely impacted.

The easy solution is to closely monitor any such changes and keep changing the menu price accordingly. Another rational way to deal with this is to look for new suppliers, or perhaps change the menu or use cheaper ingredients to stay profitable.

Calculating the average restaurant food cost percentage isn't difficult, but it requires regular commitment and time-to-time analysis of expenses, and use the data to increase sales and profit. Three things that you need to take into consideration-

1. The inventory cost the value of the food inventory at the beginning of the week/month and at the value at the end of the week/month.
   
2. Additional purchases made during the week.
   
3. Sales figure during that period.
   

To calculate the average food cost, add the value of the initial investment in the inventory and cost of additional purchases of the period. Subtract that total cost of the inventory at the end of the considered period. This gives you the average food costs. Divide this cost with the total food sales. This is the percentage of your total revenue. The lower this percentage, the better the business.

Most restaurant management create a menu itemfood cost spreadsheet that helps them track the food inventory and the average food costs. Most times, these calculations are manual. But it is possible to implement a system in the overall restaurant management and create a spreadsheet to automate the process. The spreadsheet can help in creating a menu itemfood cost sheet that will help in monitoring not just the food costs, but also the labor costs, and equipment costs.

The first six things that you need to take into consideration before creating a food cost spreadsheet include-

1. Beginning inventory
   
2. Ending inventory
   
3. Prime costs
   
4. Recipe cost
   
5. Per plate cost
   
6. Target food cost percentage
   

Implement the general food cost percentage formula-(Beginning Inventory + Purchases Ending Inventory) Food Sales
Once you have a clear calculation, it is easier to create a food cost spreadsheet. Here, we mention a few steps that can be followed to create a food cost spreadsheet-

1. Do an extensive market research to figure what food cost sheets are other similar businesses using. Figure if any one of them suits your needs. Or, make your own list.
   
2. List every information that will be needed on the spreadsheet including the price of the ingredients, weekly/monthly fixed costs, variable costs, etc.
   
3. Calculate and add the costs of each ingredient required in a menu item. Create a different column for each menu item.
   
4. Keep updating the sales figure of each menu item.
   
5. Invest in a point of sale system that can generate accurate product mix reports.
   
6. Update the sheet every time there is a new menu item added or when prices change.
   

You have a sheet that can be used regularly.

One of the most important strategies to keep the average food cost under control is to balance high-cost menu items with low-cost ones. It isn't easy or instant. But keen observation and keeping a track of the average food cost or any changes in the food cost can make it a smooth process. The primary goal to determine that the food cost is under control should be to-

1. Keep your food costs updated so you know what every item on your menu costs.
   
2. Implement a point of sale system to generate accurate product mix reports.
   
3. Learn the principles of menu psychology and menu engineering to create balance and increase profits.
   
4. The price of the menu items and continually updating the menu with changing prices of ingredients is the key to keep the average food cost under control.
   

If your restaurant's actual Food Cost percentage is much greater than your ideal food cost percentage, here are a few solutions to deal with it-

1. Raise the menu prices- A small hike in the price can make a huge difference without disturbing your customer base.
2. Rejig the menu- Focus on items that cost less and sell more than having a fancy dish that hampers your profitability.
3. Use inexpensive ingredients- Some ingredients, for instance carbs (bread, potatoes, etc) are less expensive. Create menu items with them to churn in profit.
4. Reduce portion sizes- If you have a set of price-sensitive consumers, reducing portion size is better than increasing prices.
5. Purchase in bulk- Bulk purchasing always helps in saving money. Ingredients that have a longer shelf life can always be purchased in bulk.
6. Look for alternative vendors- Most times, the average food cost keeps increasing because restaurants are too comfortable buying from the same vendor, who may be charging more. Keep your options open and look for sellers who sell at a cheaper price.

By understanding the average food costs for your restaurant, doing business in the restaurant industry becomes much easier. The menu pricing is simpler and fair, both for the business and the customer.

An average Food Cost calculation streamlines a lot of things. Some of the most important things that average restaurant food cost does is-

1. It calculates the food cost percentage for each item in the menu.
   
2. It helps you look beyond your competition in optimizing the menu.
   
3. It increases your scope to create custom menu items.
   
4. It reduces your average food cost without compromising on the quality or customer satisfaction.
   
5. It turns your business profitable.