- June 27, 2020
- Posted by: BackOffice LLC
- Category: BackOffice Blog
Improving the profitability of your restaurant starts with controlling your food costs. By knowing where to cut costs while maintaining the quality of your food and service, you can improve your bottom line without letting your customers down. How do you do it? Here are some helpful suggestions from an experienced restaurant bookkeeper that can help you achieve your goal.
4 Practical Tips for Reducing Food Costs in the Restaurant Business
Calculate food costs
If you’re serious about reducing food costs and improving your profit margins, you should start by calculating the food-cost percentage of each item on your menu. While this task may take a huge chunk of your time, you need to do it to know if you’re making a profit or running at a loss. If you’re pressed for time, you can ask your restaurant bookkeeper to do it for you. Alternatively, you can use one of the food cost calculators available online to help you with this task.
In calculating the actual food-cost percentage, sum up the cost of ingredients for a particular menu item and divide it by the total sales for that particular item in a given period, usually a week.
Actual Food-cost percentage = Total Cost of Ingredients/Total Sales (Over a given period)
Note: The total food cost for each menu item should include the dollar value of each ingredient that goes into that particular dish.
Are you done with this task? Well, great! But your job’s not over yet. The actual food-cost percentage wouldn’t mean anything if you don’t have something to compare it to. This is why you need to calculate the ideal food-cost percentage – that is, assuming X orders of an item, how much revenue should you have taken in, and how many ingredients should you have used – using the same formula and compare the results.
Do you get different results? It’s good if the actual food-cost percentage is less than the ideal food-cost percentage since it means that you’re getting some extra profit. However, if the actual food-cost percentage is greater than the ideal food-cost percentage, you’re losing money from wastage or poor purchasing decisions – or, in worst-case scenarios, theft.
Industry experts agree that in order to make a profit, quick-service restaurants should aim for a 25% food-cost percentage, while fine dining restaurants should have an average food-cost percentage around 35%. If a certain menu item exceeds the ideal mark, consider raising your prices or start looking for more affordable ingredients instead.
Knowing your food-cost percentage can help you make better decisions and help your business rake in more profit. Aside from using it to set menu item prices, it can also be a great tool in identifying which dishes to promote, add, or eliminate from the menu.
Reduce food wastage
According to the Green Restaurant Association, the average American restaurant produces 25,000 to 75,000 pounds of food waste per year. Can you imagine how much money you are throwing down the drain? To help trim your food wastes and cut your costs, consider these simple yet helpful suggestions from experienced restaurant bookkeepers.
- Have a prep list. Arm your kitchen staff with their own prep lists so they’ll know exactly how much ingredients they need to prepare in any given day. This is extremely important, since according to an article published in Business Insider, restaurants usually prepare more food than what they actually sell.
- Use the FIFO method. Reduce spoilage by training your cooks to adopt the First In, First Out method. Use the oldest ingredients first, so you don’t end up throwing away food items that are way past their expiration dates.
- Repurpose and upcycle. Food wastage can greatly affect your profitability, so ask your chef to come up with creative ways of repurposing trims and by-products whenever possible. For example, leftover beef can be repurposed into hashed beef and/or beef casserole or added to side dishes (loaded mac and cheese, etc.) while leftover bread makes great bread pudding and croutons.
- Prevent orders from going out incorrectly. Getting the wrong order orserving the wrong meal can lead to unnecessary food wastage, so make sure your staff checks each dish against the ticket before serving. Do this and you can significantly reduce your food wastage and increase your revenues accordingly.
Take a second look at your menu
Don’t be afraid to take drastic actions, especially if your profitability depends on it. There is no harm in trimming down your menu and removing poor-selling dishes or controlling your serving portions, according to experienced restaurant bookkeepers. Most people are now becoming more health-conscious, so they may even appreciate you more for serving smaller portions.
Don’t forget to consider the cost of labor involved in producing a given menu item. If certain dishes are taking too long to produce and aren’t seeing a necessary return on investment, perhaps you need to consider finding quicker, simpler ways to make the meal. Additionally, you should keep track of the dishes that usually get returned and determine what’s causing the problem. Is there a way to improve the issues, or should you totally eliminate it from your menu?
It can be easy for restaurant owners to only consider if a meal is enjoyed by customers or not; you should start considering if menu items are profitable after considering variable costs like food and labor.
Manage your inventory
You don’t want your inventory to end up in the trash bin, so make some rules to keep your employees from throwing food out. Here are some useful guidelines that you may want to adopt in managing your inventory.
- Buy in bulk. Buying food items in larger volumes can save you money, but it can also increase the possibility of food spoilage. To negotiate a better price with your suppliers, ask them if you can pay in bulk and receive the deliveries in multiple shipments.
- Lower your inventory levels. When it comes to perishable items, it makes perfect sense to lower your inventory levels, because this can help reduce food spoilage. However, make sure you have enough ingredients to last until the next delivery, and calculate a little extra to keep your inventory at a safe level.
- Do a daily inventory on your key items to avoid overstocking. Moreover, conducting a daily inventory of expensive items discourages theft.
- Do business with local suppliers. See if there are any local suppliers in your area who can fulfill your orders. This way, you may get a better price, since there is no need to ship your orders.
- Check deliveries for rotten produce. Assign someone to monitor incoming deliveries.
- Keep perishable items in airtight containers. This practice ordinarily keeps produce fresh for longer.
Increase Your Restaurant’s Profitability with Outsourced Bookkeeping Services
You can cut costs and increase your profit margins by speaking with an expert. At BackOffice Solutions, our veteran restaurant bookkeepers and accountants have decades of experience helping restaurant owners lower their expenses and improve their bottom line. Moreover, the portal we offer our customers provides a product mix margin report that will inform you how much money each item sold brings to your bottom line, helping you keep food costs low and optimize your menu.
Contact us today to learn more about our outsourced bookkeeping services and see how BackOffice can help your business grow!