What does the term "food cost percentage" refer to?

The term "food cost percentage" is correctly defined as the ratio of food used divided by total sales. This metric is essential for restaurant management because it helps evaluate how much of their revenue is spent on the cost of food ingredients relative to the total earnings from food sales. By calculating this percentage, restaurant operators can assess whether their food costs are in line with expected benchmarks or industry standards, guiding them in pricing, menu design, and inventory control.

This calculation is crucial for financial planning and maintaining profitability, as it directly impacts the overall financial health of the establishment. It informs decisions about menu pricing and helps identify areas where costs can be reduced or where menu items may not be sufficiently profitable. Understanding food cost percentage equips restaurateurs with the knowledge to make more strategic business decisions.