Your profitability will never reach its full potential if you’re not accurately capturing food costs. Answering a few questions can help determine if you are capturing your food costs accurately.
How Often Do You Calculate Costs?
Consistency in calculating food costs will help you manage costs more effectively. You can choose the timing and set a schedule, so you never miss calculations. If things change, be open to resetting your schedule so you’re capturing the most up to date costs.
Some companies might choose to match calculations with set delivery dates of incoming ingredients, while others might align with product shipment dates. If you have changing specials, want to diversify your offering or add seasonal products to your menu of products, adjustments should also be made for these changes. If a change will affect profitability, it should be marked on your schedule, so they’re not overlooked or misinterpreted
Are You Addressing Fluctuations?
When you have a schedule, you’ll be better equipped to spot changes in profit margins and address them accordingly. As you complete calculations, ongoing management allows you to address food cost fluctuations. Increased costs might call for adjustments to your pricing so you can continue to be profitable. This takes careful planning as if you’re constantly raising prices it can set off red flags for customers. Price increases should follow after a noticeable pattern of food cost increases, preferably on an annual basis, as opposed to new increases every few months.
Do Costs Justify Your Products?
If you’re using specialty ingredients to fill a niche market, it can often pose issues when ingredient costs rise. When this happens, you have to determine if the cost of the ingredients allows for profitability. If you’re not raising your prices to offset higher costs you eat into your profitability. As well, if you have to raise your prices beyond what your customers are willing to spend, then it might be time to take that item off your menu.
In some cases, it might make better sense to look at ways to offset prices. Co-packers can often provide services that save you money allowing you to improve your offering. In the cases where you do decide to keep an item but raise the prices, keep your staff informed of the costs so they can provide that info to customers.
How Do You Set Your Prices?
Food costs have to be combined with other costs including waste, labor costs and overhead before you can set your prices. If you aren’t looking at these factors when setting your prices, you could run into profitability issues.
You have to look at all the costs that go into getting a product to your customer as well as profit margins. Once you can determine what percentage is going to labor, waste, overhead and ingredients you can look for ways to save, while also being more realistic in setting solid pricing. This is the best way to remain profitable. You can’t give products away, but you can’t charge prices the market can’t bear.
It’s easy to underestimate how food cost calculations affect your business. Answering these questions will help you determine if you are accurately capturing costs to improve profitability.
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