Food costing is a strategy that involves the assessment of food costs that are incurred by a restaurant as it seeks to provide customers with access to the items offered on a menu. The idea behind food costing is to determine what level of cost must be maintained in order for the business to offer the menu items at prices that are competitive in the local market. Doing so aids in the task of figuring food prices based on the cost involved in preparing each item, and can also help in identifying increases in certain ingredients that in turn lead to changes in the menu items offered or adjustment of menu prices.
With food costing, the idea is to determine the ratio between the food costs incurred by the restaurant and the revenue that is generated by preparing and serving that food. A simple formula for food costing calls for determining the costs associated with the ingredients used to create an item, then dividing those costs by the price of that item as listed on the menu. That figure is then multiplied by 100 in order to identify the food cost.
This basic calculation can be used to determine the total cost incurred for the creation of each menu item for any period desired, with many restaurants choosing to monitor food costing on a weekly or monthly basis. The approach makes it easier to remain aware of any increases in the cost of ingredients and determine which course of action may be necessary to help the business remain profitable.
Depending on the reasons for cost increases revealed by food costing, the restaurant may choose to purchase different brands of ingredients that have similar quality but cost less. At other times, going with other brands of ingredients may be undesirable or impractical, making it necessary to increase menu prices slightly in order to continue turning an acceptable level of profit. When neither option is available, the elimination of one or more menu items and introducing newer items that can be prepared at a lower cost may be required in order to avoid incurring a loss.
Both small restaurants and larger restaurant chains will make use of food costing as a means of gauging the profitability of the operation and as a way to keep control of food costs. The basic formula will work with just about any type of restaurant from a simple diner style establishment to the most elaborate and upscale eating establishments. In some cases, the head chef will work hand in hand with a controller to determine the best way to approach food costing so that the menu items are of high quality while still turning an acceptable level of profit.