Actual and Theoretical Food Costing and Operating Manual for Restaurant Operators

This blog aims to explore the concept of product utilization in restaurants, focusing on actual and theoretical product cost and variance, calculation methods, common sources of increased product cost variance and solutions to increase your profits.

First, let us focus on the definitions and limitations of actual and theoretical product cost.

What is the Difference Between Actual and Theoretical Product Cost?

Real food costs:

The cost of what is actually consumed and wasted relative to sales. This is measured by taking inventory at the beginning and end of a period. Actual usage includes what your guests eat, waste that goes to the trash, marked items that for whatever reason don’t make it to the dining hall. In other words, it is the cost of goods sold (COGS).

Actual food costs are calculated by what you actually use in the time period you are analyzing, depending on your point of view.

(Starting inventory + purchased inventory – ending inventory) x Product cost = actual COGS

COGS / Menu Price = percentage of actual food cost

If you do not have a restaurant management system (RMS), calculating actual food costs manually can lead to errors.

Theoretical food cost:

It is an estimated or projected cost percentage of the amount of food used in the restaurant kitchen. It is calculated using the purchase cost, recipe yield and the number of items sold. This figure assumes no waste during preparation and service.

Product price / menu price = theoretical food cost percentage

Theoretical costs are inherently inaccurate because no kitchen operates at 100% efficiency, so why are they tracked and scrutinized by operators? Theoretical food costs are used to measure efficiency and identify problem areas at the ingredient level (such as theft or incorrect portioning).

How to calculate the deviation between actual and theoretical food cost?

We will use an example to better understand this topic.

For the production of burgers, your restaurant uses 100 grams of ground beef for each burger. For simplicity, we will focus only on ground beef. During the period under review, you paid 400 TL per kilo for ground beef and sold 25 Burgers, so you must have spent 1000 TL on them. The cost per burger is 40 TL and the menu price of these burgers is 100 TL.

40 TL / 100 TL = 40% theoretical food cost

For simplicity’s sake, let’s assume that this minced meat is the only food item you have to use.

At the start of this period, you had 20 kg of ground beef in your inventory. According to the recipe quantities, you should have used 15 kg of ground beef for these burgers, which should have left you with 5 kg of ground beef. However, you realize that you do not have any minced beef. This gives you your actual food costs, as the inventory takes into account actual usage.

You actually used 20 kg of ground beef, which means that your actual COGS is based on 5 kg of extra ground beef. This means that you used 125 grams of minced meat per burger, not 100 grams.

125 grams of minced meat is 50 TL. We mentioned that 100 lira is the menu price.

50/100 = 50% real food cost.

Minimizing this 10% variance will take your restaurant’s performance and profitability to the next level. The closer you get this variance to zero, the more money you put in your pocket.

Now that we know why it is important to keep track of the differences between actual and theoretical food costs, let’s look at some of the factors that influence food utilization in restaurants and the strategies operators can use to reduce this difference.

Common food waste culprits and ways to deal with them:

The problem Food spoilage

Products can spoil. While this is a painful lesson for all of humanity, it may be the one most uniquely felt by restaurateurs. You buy three crates of lemons and a week later you notice that half of the second crate is moldy and must be thrown away. You didn’t use those lemons in recipes for guests, but you already paid for them and didn’t make a profit. Your refrigerator breaks down and you lose all of your fresh produce and your food costs increase until the solution that cannot repair the refrigerator on Tuesday.

How can you fix this:

Having an effective inventory system to track your product quantity helps you not only calculate food costs, but also monitor product spoilage and utilization.

If you have the right stock quantities, you can buy what you need between orders. Your vendors may have a great price for an item and you may be tempted to stock up. If you have the money, freezer space or extra space in general, this can be a great way to save on costs.

But if you don’t, it’s also possible to find creative ways to use up produce that will spoil before you use it. This can be done through preservation methods such as pickling, canning or jam making.

Finally, it is also important to maintain the refrigerator equipment and have it serviced regularly. Many operators don’t keep cash on hand to fix a problem until it arises, but investing a little more can save you a lot of money in the long run.

Issue Cooking and ordering errors

Sometimes guests and customers change their minds or don’t like what they ordered. Sometimes the kitchen makes mistakes. No matter how much we try to do it perfectly and right the first time, mistakes happen and they accumulate.

How can you fix this:

Simple tools such as a thermometer to check that meat has reached the desired degree of doneness can make a big difference. Encouraging your waiters to improve guest experiences by taking the right orders can also help.

And the best way to ensure your team delivers great service to your guests is to reduce stress and create an environment where everyone is supported to do their best work, helping to reduce errors. It can also help develop a deep sense of ownership of working in an environment supported by the restaurant.

Issue: Food preparation and portioning

Food preparation is the process in the kitchen where most waste occurs. This can happen when too much product is cut, when products are prepared incorrectly or when portions are inconsistent.

How can you fix this:

Use scales. Measuring ingredients by eye can work well in your home kitchen, but if you are seriously looking to improve the cost of food, measuring ingredients by weight is one of the best ways.

Weighing ingredients can help maintain consistency, especially for batch prep products like sauces and dough, and it’s also a great way to ensure portions are consistent every time.

Another important way to reduce preparation and portion waste is to invest in staff training. Digital recipe books stored on tablets or recipe display systems can help with this training. Digital recipe books can have a built-in scale to measure quantities before they are made, and also allow you to add pictures or videos to show how preparation should be done. Having comprehensive recipe management also prevents inefficiencies in food preparation and portions.

Issue: Seasonality and material variations

These differences due to seasonality and different suppliers can affect both preparation quantities and recipe yields, from guest satisfaction to cooking quantities.

How can you fix this:

Writing recipes with weights and measures can help fight waste, as it is more consistent than using units or quantities as a unit of measurement.

You might also consider making certain dishes seasonal menu items or LTDs (Limited Time Offers), which are affected by ingredient quality and availability.

In conclusion, identifying the factors that influence your food costs can feel like navigating a culinary maze. With countless variables at play and an endless stream of daily tasks to manage, it’s easy for operators to get lost in the chaos. But fear not, because there is an easier way to stop relying on Excel and become a spreadsheet master, and it’s all about implementing the right restaurant cost platform. That’s where Qapera SaaS-based inventory management technology comes in, allowing you to control your costs while managing your entire production process end-to-end.

So, if you are looking for a comprehensive solution to manage actual and theoretical food costs, reduce variance and gain full control over your restaurant expenses, try Qapera now with a 14-day free trial and let’s digitize your restaurant together.