The Price of Food and Beverages

The price of food and drinks must be well thought out.

The cost of food and drinks in a restaurant is an important part of what you pay. Good thought goes into how much things should cost, and prices are carefully considered before being decided on so that customers get their money's worth while still feeling like they got great deals on quality cuisine served with excellent customer service!

The calculation of the food cost and the measurement of the sales prices of food and drinks can be traced back to the sum of the following elements:

The price of food and drinks

• cost of raw materials
• other variable costs
• labor cost
• overhead costs
• profit share.

The price of food and drinks

To carry out this operation precisely, it is necessary to introduce other concepts, those linked to passive cost of goods and to first cost of the dish, as indicated by catering accounting manuals. The first cost of the dish is that of the recipe (cost of the quantities and ingredients used).

A recipe, or set of instructions for a specific process for making something with certain materials - such as cooking food on a stovetop with olive oil over medium heat until the color is golden (about 10-15 minutes). There are also hidden costs when making your own dishes: not only do we have our time invested in creating them, but there are other factors such as gasoline prices that can change unexpectedly every day, so preparation becomes difficult without planning!

The price of food and drinks

Determining the number of portions of a recipe and dividing the costs by them allows us to obtain the first cost of the dish. The goods passive cost is instead calculated in relation to the purchase of the goods necessary for the creation of a recipe. In other words, it refers to every material, to every ingredient and consequently also as the sum of all the materials.

The price of food and drinks: the time variable

The price of food and drinks

The correct food cost calculation operation must also take into account time: the analysis period is generally the month, the quarter, or the year. Furthermore, the meals offered by the entrepreneur and those must be counted consumed by employees, because this is how the cost is obtained net of purchases of materials for the period.

The definitive formula for calculating the food cost therefore becomes the following: “Net cost of food goods/Adjusted revenues”*100 (the adjusted revenues are obtained by taking into consideration the meals offered by the entrepreneur and the cost of the meals consumed by the employees, because the related cost must be recovered through sales).

The net price paid by a company to purchase goods and services needed in the production process, divided by 100 minus the adjusted revenues derived from the sale of those same items at retail.

The price of food and drinks

Once the food cost has been obtained, it is necessary to proceed with the so-called “factor method”, which consists in multiplying the cost of raw materials by a coefficient, in order to obtain the selling price of each dish on the menu. How to do it? To get the coefficient we will have to:

• set the selling price of what we want to offer to customers at 100
• divide the selling price by the percentage food cost calculated as previously seen
• then “100/Food Cost” (e.g.100/40 = 2.50), with the food cost equal to 40%.

The value obtained is the coefficient which, multiplied by the prime cost of a dish, will give us the "indicative selling price", because the choice of the selling price of a dish also depends from the analysis of the quantity sold and its margin, but also of overall margins of all commercial activity.

Food Cost: other economic indicators

There are also other indicators that can help a restaurateur to keep the progress of his business under control, such as the quality/price ratio, important because it allows him to establish the type of consumption preferred by his customers. To accurately calculate this indicator, two intermediate steps are needed: the first consists in determining the average price charged to customers through the formula “Total sales/No. of dishes served”. The second is the calculation of the average price offered by the restaurant, with the formula "Sum of prices of all courses/No. of dishes that make up the menu". Finally, the two results obtained are taken and compared to each other to obtain the "quality/price" ratio: "Average price charged to customers/Average price offered by the venue". If the value of this formula is between 0.9 and 1 it means that there is a balance between the offer of the venue and the choice (or expectation) of the customers.

A result less than 0.9 indicates that our customers are moving towards lower prices, and finally a result higher than 1 makes us understand that customers generally choose the most expensive dishes, which highlight a balance between the quality of the food and its price.

Cost of goods, labor costs, revenues, meals offered, "quality/price" ratio: so many elements that could make the calculation of the food cost seem extremely complicated but which in reality, once you have acquired a certain confidence with the subject, are strategic for the success of a local.