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One of the first things to do when setting up any business is to identify your expenses. This crucial step is the foundation of all present and future budgetary considerations, pricing strategies, and profitability calculations.
The following is a step-by-step guide to determining food costs for your new online business.
1. Take Stock of Your Inventory
You must have an effective method of cataloging your inventory. The quantity of each ingredient and the price at which it was bought from the supplier should be recorded.
Make sure you are also aware of delivery and handling for your pantry items. Once your business has been up and running for a while, you will need to determine your cost of goods sold every month for future calculations.
2. Determine Direct Costs for Each Portion
After you have finalized your menu, you can begin calculating the direct cost of each item. This is done by calculating the quantity of each ingredient required for a single dish and how much the total would be for all its components.
3. Add Indirect Costs
Not all expenses are directly related to the food or its preparation. Remember to keep in mind overhead expenses such as rent and utility bills. Also, add staff salaries, maintenance, and operating costs for your kitchen.
A successful online food business must have an excellent delivery system in place. Take into account how you will maintain the quality of your food, such as investing in good value packaging that keeps it at the right temperature.
Other delivery costs include rider salaries, petrol, maintenance of vehicles, and percentages to food delivery platforms (if you partner with them).
4. Measure Food Cost Percentage
To calculate the proportion of a dish’s price that is spent on food, divide the portion cost by the menu price for that particular dish.
This can help you determine whether you have priced the meal appropriately and whether it is worth the time, effort, and money it requires to prepare.
Cost / Sale Price = Food Cost Percentage