How Much Should a Restaurant’s Food Cost?

Have you recently opened a restaurant, or pondering the idea?  Have you sat down and looked at your estimated expenses?  If not, we highly encourage you to do so.  The financial and operational measurements of restaurants are critical when evaluating success and performance.  Depending on the type of restaurant you are opening or have, high-end luxury or fast food, your food, and labor costs will vary widely.  Every restaurant and every location is different.  Just think, a restaurant in California will have different food and labor costs vs a restaurant in Kansas.   

For our geographical region, the Southeast United States and specifically South Carolina, an average food cost percentage is between 28% - 35%.   Typically a fast food, diner, or lower-end food establishment will be closer to 25% - 28%, whereas your steak house, seafood restaurant, or higher establishments will be closer to 35-38%.  Again, all restaurants will vary in their offerings.  Non-alcoholic and alcoholic beverages will also play into your food cost % - average 10 – 20%.   Alcohol typically brings in a lower percent of food cost, and if appropriately controlled, there is little or no waste.  Just make sure you train your bartenders to serve properly and not waste! 😉  Now, what does this mean, or how do you calculate this?   

Food cost %  =  Total Sales  /  Total Food Cost

 In addition to your food cost %, a restaurateur will need to evaluate their Prime Cost.  This is the key to achieve success in the restaurant business.

   Prime Cost  =  Food Costs  +  Labor Costs 

It is best to stay below 60% for both food and labor costs.  In the case you are offering a higher-end food item (i.e. seafood, steak, etc.) you will need to manage your labor costs to ensure the balance one another out to be below 60%.   One thing to note, when calculating your labor costs, ensure that you include taxes and benefits into the number.  Prime costs will fluctuate throughout different seasons.  You might have a busier summer or winter season and offer different food items throughout the seasons.  Keep that in mind!   

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Are you interested in learning more about ShoreSource Business Solutions, LLC?   
Feel free to reach us at 843.729.2961 or info@shoresourcebiz.com.