Where to Start?
When you set out to conquer food cost, it may seem like a daunting task. A large percentage of foodpreneuers consider the answer to item pricing is to charge whatever everyone else does. There is a tendency not to deviate from what your neighbor is doing. However, evaluating ALL your costs, and in particular your food cost, is the ONLY way to price your menu items.
The issue with pricing according to competition? You are not considering what works for you and your business. It’s not a sustainable way to run a business and conquer food cost if you have a pricing structure predicated on what your competition is doing. If you are pricing simply by trying to predict what you think your customer is going to pay for your food, you will not successfully conquer food costs.
Yes, it is important to pay attention to your competition when pricing items. Certainly listen to your customers, but don’t allow them to dictate your pricing strategy.
How do you know what your competition pays for their food? Do you know what vendor deals they’ve negotiated? What they take in salary? How do you know what profit margin is acceptable to them in conquering food cost? There are too many questions to consider. Regarding your projections onto your customers, the “Oh, they’ll never pay that for my sandwich” will never, ever work. Price your food to make money, always.
At the end of the day, if your product is not priced at a margin that works for you, your business is not sustainable. You will have to close your doors, or best case scenario live with frustration because you’re not making the money you want and conquering food cost. That frustration will translate into all aspects of your business. Your employees and customers will be able to tell if the business has “lost its soul” and sales will inevitably suffer.
So, if you’re ready to conquer food costs there’s good news, it’s a simple formula! Take the time to “do your homework” and your business will thrive.
1. Calculate
Do simple google search on how to calculate your food cost. It will yield you the results of a formula to see how much of your profit is going toward the cost of your food. Step one is always to calculate.
Take the cost of what you paid for an item (including all ingredients), and divide by what you charge for it. Food cost should typically be no more than 30% of the total price of a menu item.
I have seen many foodpreneurs multiply the cost of an item by three to determine what to charge the customer. However, a more precise formula is to take the cost of an item and divide it by the goal-cost percentage (in decimal form) you are looking to make.
These spreadsheets and videos on Wiki-How simply and effectively give you the tools you need to conquer food cost.
So if it’s this easy, why isn’t everyone making money?
The catch-22 is that making money is usually not 100% related to how much you paid for the actual food item. It’s related to ALL the other non-food-related costs associated with doing business. Those costs are included but not limited to:
- Labor/Staffing
- Rent
- Commercial Kitchen and/or Storage Rental
- Utilities (may or may not be included in rent)
- Water treatment/disposal
- Taxes
- Insurance
- Advertising/Marketing
- Events
- Equipment Maintenance
2. Control
You may have heard that to achieve success in life, you’re going to have to let go of control. Delegate delegate delegate, right? Well, that’s true in one respect! You do need to give your employees autonomy and set up effective cost-control systems to measure and track costs and profits. First you must control so that you can then delegate that control to others.
When it comes to food, it’s not what you expect, it’s what you inspect.
And you can only inspect what you measure and “control.”
Everything, and I mean, EVERYTHING needs to be spec’d out, measured, and cost-controlled.
Doing this is also a necessary step in conquering food cost. Steps in this process include but are not limited to:
- Monthly Inventory
- Production Sheets
- Par Levels
- Recipe Documentation
- Measuring/Weighing everything that is not single-serving (this could be side items, toppings, sauces, etc)
- Training/Enforcement of Systems
- POS Tracking (where applicable)
Conquer Food Cost
Yes, it is POSSIBLE to conquer food cost. It is SIMPLE, yet not always easy.
The good news is that you always have the answer: You are the one ultimately in control because you are the one who gets to choose. You choose how it’s going to go. What you’re going to value, how you’re going to price your product, how you’re going to communicate that to your staff and customers…EVERYTHING is up to you!
Special thanks to our contributor, Case Erickson. Case is a Consultant & Commercial Advisor at ESG Realty Advisors. He also produces the Trucklandia Food Fest in Austin.
If you need help developing cost-control systems or business coaching, Message Case through LinkedIn, Twitter, or Facebook. He offers merit-based consulting. He only gets paid if you make more money, and saves clients 10% on average!
