“We lose money on each transaction, but we make it up in volume.” It’s an old joke, but when it comes to restaurant food cost, it reminds us that knowing the profit margin of each menu item is critically important to overall profitability. Sponsored by CrunchTime!
September 19, 2015
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Keeping menu mix information current can be a challenge, especially in a multi-unit, multi-region restaurant chain with shifting costs, menu items, selling prices, and frequent LTOs. Here are tips on how you can tackle food costs:
True Food Cost Gross Profit Margin
You probably already know how to calculate a profit margin:
(Selling Price - Cost of Goods) / Selling Price = Gross Profit
For example: an item that sells for $10, and that costs $3, would generate gross profits of $7 (selling price - cost of goods) and a gross profit margin of 70% ($7 / $10).
Problems arise when typical variables for a restaurant chain are introduced:
Each location has multiple recipes
Each recipe has multiple ingredients
Ingredient costs may vary by region
Selling prices may vary by region
Ingredient costs change over time
Selling prices change over time
Because there’s an enormous amount of data to track, and small changes in pricing or ingredients can have a huge effect on restaurant food cost, calculating gross profit can be a very difficult exercise without the right tools.
Help from the Restaurant Back Office
Software-based recipe and menu engineering tools in restaurant back office s...
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