What is food cost and how does it effect your company? Food cost percent is the percentage amount of total food purchases in relationship to the amount of revenue generated.
An example:
You are selling Chicken Picatta for a menu price of ten dollars, and the ingredients cost you two dollars and fifty cents. To form your food cost percent you would simply take cost of food divided by revenue generated equals food cost percent. In this example, you would take $2.50 divide by $10.00= .25 or 25 percent.
Now what does this mean when your starting your own catering business. In general in the world of catering most menus are sold as clusters. A dinner menu would contain a salad, starch,vegetable, and dessert to compliment the entree. So you would have to add up all your costs and divide by the given menu price.
Having a good knowledge of food cost will help you determine your menu pricing and make sure your business is cost-effective, specifically in respect to helping you determine menu costs. Ideally, food cost percent would be 20 to 25 percent. Of course this also depends on what you are serving and what you can mark it up for. An example would be a Tenderloin, it might cost you $15.00. You can sell it for $45.00. Your food cost would be 33 percent,but your making $30.00 a cover. Going back to the previous Chicken Picatta example, you were making $7.50 per plate. That is wonderful, but I’ll take the $30.00 per plate and higher food cost anytime.
You do want to market your product for the highest margin possible. When determining menu cost, you must also consider what the competition is charging. You don’t necessarily need to be the cheapest, but you must be able to justify the cost. I would also suggest implementing a service charge, they are typically 17-20%. This will help counter-balance vehicle maintenance costs, rental, etc, and you will have some left over to put in your pocket.
Knowing your food cost will help you manage your business. It effects your bottom line enormously.Assume, you are averaging one thousand covers per week. If your food cost is 25% of your purchases, it would be two thousand five hundred dollars. If your food cost is 30% of your purchases, it would be three thousand dollars. The variation is five hundred dollars per week. That’s a twenty six thousand dollars per year raise. If you are just starting off, you’re probably not going to do those numbers to begin with. Just remember, starting off with good practices will stay with you for the lifetime of your business.
Remember, you do want to have fun with starting your own home catering business but your primary motivation must be to make money. If you are money motivated, then starting a catering business is for you. Work smart, work hard, and profit well.
Get money for your business startup – read and watch videos about how to get a grant on this blog.
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