Average Restaurant Food Cost | 5 mins read

How to Better Price a Menu Using Average Restaurant Food Cost

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Hanh Truong

By Hanh Truong

Introduction to Average Restaurant Food Cost

Menu prices are just one of the many factors that will make or break a restaurant's operation. To ensure that an eatery is making a profit from its offerings, management teams must strategize their pricing. This entails calculating the average restaurant food cost and setting up prices in accordance with it. By following this practice, operators and owners can boost their profit margins and increase revenue.

Pricing a Menu Based on Average Restaurant Food Cost

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Food cost is the ratio of ingredient expenses to revenue generated from food sales. This metric can be measured by summing up the cost of each ingredient in a dish. Some restaurateurs will also incorporate inventory value into their food costs. Generally, the most common way to calculate food cost is by using the food cost formula.

  • Food Cost = ((Beginning Inventory + Purchases) - Ending Inventory) / Food Sales
By determining food cost, which is usually expressed as a percentage, restaurant owners can price their menus accurately. It will also help them gain insight into how they can improve their business decisions. For example, they can identify whether they need to swap their costly ingredients for a less expensive alternative. They can also use their food cost information and find new suppliers that fit their budget.

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What Is The Average Restaurant Food Cost?

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The average restaurant food cost will vary for each eatery. This is because different factors will affect how much restaurateurs pay for ingredients and beverages. For instance, seasonality, region, preparation processes, and sourcing can cause certain product prices to increase.

Additionally, food cost percentages will be different for each menu item. This is especially apparent when restaurants serve several categories of food, such as brunch and dinner. Depending on the establishment's operations, location, and function, food cost averages will differ as well. For example, a high-end full-service brick and mortar restaurant will experience distinct food costs, compared to a fast-casual food truck.

However, despite these differences, many restaurants will try to have a food cost percentage that is around 25% to 35%. This is considered to be the average restaurant food cost. Management teams should regularly calculate their food cost to gauge how much of their revenue goes towards inventory. This is important because they can gain a clearer perspective of their spending and make improvements to their prices accordingly.

How to Price a Menu

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When pricing a menu, restaurant operators and owners should implement the following best practices.

1. Identify Food Costs
A central step to menu pricing is identifying food costs. Restaurant owners should use the food cost percentage formula to see how much money they usually spend on ingredients. They can then use this metric to see what their menu prices should be to offset costs.

It is recommended that restaurant management teams test out various scenarios with different menu prices. This will allow them to find the optimal price to charge customers while ensuring food costs are within 25-35%.

2. Factor in Other Costs
When using the average restaurant food cost for menu pricing, restaurant operators should also consider other costs. For example, the kitchen crew that is preparing the dish needs to be paid, as well as those serving customers. Kitchen supplies, appliances, equipment, and silverware come at an expense too. Additionally, restaurants have operating costs, such as rent, utilities, and electricity. Therefore, when creating prices, restaurant owners need to ensure that they are making enough profits to cover these costs.

3. Shift Prices with New Recipes
It is important that all ingredients in a customer's dish are accounted for. For instance, a food truck serves a street taco with tortilla, protein, salsa, and lettuce. They charge this menu item for the price of $2.00. However, the manager decides to change the recipe and adds new toppings, including a house-made sauce blend and guacamole. With this new recipe, the food truck owner will need to increase their prices to reflect the new ingredients.

4. Monitor Seasonality
As new seasons commence, certain products, like fruits and vegetables, will be hard to harvest. For example, California avocados are only in season from spring to late summer. This means the fruit's price will be higher in the winter and fall, which can subsequently increase an eatery's average food cost. Restaurant owners should carefully follow these trends and adjust their menu prices according to the current market prices. Therefore, in the winter and fall, the food truck operator should consider shifting their guacamole prices for the season.

Restaurants can also prevent their food cost and menu prices from increasing by swapping out ingredients. For example, instead of selling the taco with guacamole year-round, the taco truck can replace it with a specialty sauce when avocados are out of season. Additionally, the eatery can research new suppliers who will provide the out-of-season product they need for a better market price.

Key Takeaways to Average Restaurant Food Cost

  • Restaurants and food service businesses need to calculate their average food cost to ensure accurate menu pricing.
  • Food cost measures how much a restaurant spends on its food and beverage inventory. Restaurant operators can identify their food spending by using the food cost percentage formula.
  • The average food cost percentage for restaurants ranges between 25 to 35%. However, this will vary for different restaurants depending on their establishment, operation, and location. Other factors that affect food cost include preparation processes and seasonality.
  • By using food cost percentages to create menu prices, restaurant management teams can improve their profitability and guarantee that they generate revenue from their offerings.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

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