Does the cost of food generally include the labor to prepare it? It seems I've seen it shown both ways. I suppose the important thing is just to be sure you include it accurately, but since a multiple of food cost is usually used in a typical formula, I'm just not sure. Appreciate any help. I'm new at this.
calculating food costs
Hello and welcome.
This is a topic that's been discussed quite a lot (but not as much as knives), so you'll be able to find tons of information just by doing a couple searches here.
This has been discussed in the past week, in at least 2, if not 3, threads.
Nicco61 had some good info and resources: http://www.cheftalk.com/t/71332/help-advice-with-food-cost#post_394210
Also misc info here: http://www.cheftalk.com/t/71329/food-costing#post_394056
And especially helpful http://www.foodreference.com/html/artfoodcost.html
Taking what books and published articles say, together with real-life advice from chefs/owners who've been through it, you should have a pretty good start.
For me, food cost (FC) is the dollars I spend to buy the food products.
Labor cost (LC) is the cost of labor to put the food in front of the customer.
Overhead (OC) is everything else.
Total Cost (TC) = FC+LC+OC
Sales = $ paid by customers, and is, hopefully, greater than TC. Sales-TC = Profit
Food Cost Percentage (FCP) = (FC/Sales)*100. NOTE: FCP cannot be calculated until AFTER you've sold something!
Over the years, surveys show that profitable typical restaurants generally have a FCP below 40%, more than likely around 30-33%, with some in the 25-30% range. It is pretty obvious that the LCP as well as the OCP probably vary inversely to the FCP, in other words FCP+LCP+OCP < 1, otherwise, the restaurant goes broke!
Menu prices, IMHO, are NOT determined by what it costs to put the food in front of the customer, they are determined by what the customer is willing to pay to eat in your place versus a competitor's place. If your competitor(s) can sell a dinner for $19.95 and your food cost for a similar dinner is greater than $6.67, you had better be able to keep either, or both, your LC and OC under $6.67 respectively or you will go broke.
Say your food cost is, oh, $7.50 for the same dinner and you guess LC and OC are similar to industry averages and you think your FCP should be 30%, so you divide the $7.50 FC by 0.30 (FCP) and you end up with a menu price of $25.00, your competitor is offering the same thing for $5.05 less! You will not sell many dinners!
Say your food cost is, oh, $5.00 for the same dinner and you guess LC and OC are similar to industry averages but they are actually higher, say $6.50 each, and you still think a 30% FCP is reasonable, your menu price will be $16.67 ($5.00 (FC)/0.30 (FCP) and you will go broke! Why? Because your actual TC=$5.00+$6.50+$6.50 = $18.00 and you will be losing $1.33 on every dinner you sell!
However you calculate your menu pricing, remember, it is all a guess until the number of covers times the average actual ticket price is in the register.
FCP, LCP, OCP all can help you identify places to cut costs but they are after the fact management numbers, not a crystal ball for success!
Know ALL of your costs as well as your competition and market, then use whatever tools make sense to you!
Specialties: MasterCook/RecipeFox; Culinary logistics; Personal Chef; Small restaurant owner; Caterer
Food cost is the cost of food. Labor cost is the cost of labor to both produce and serve that food. Both should be kept seperate. In particular to pinpoint problems.
Over 50 years in food service business 35 as Ex Chef. Specializing in Volume upscale Catering both on and off premise .(former Exec. Chef in the largest on premise caterer in US with 17 Million Dollars per year annual volume).
Well versed in all facets of Continental Cuisine...