How to Calculate Food Cost Percentage and Why It's Important

The average restaurant spends between 20 and 40% of its revenue on food.

With so many other operational expenses for restaurants – like labor, rent, utilities, and marketing – food cost takes up a large chunk of that cash! Do you know how much your restaurant spends on food?

Knowing your restaurant’s food cost percentage can help you make effective business decisions, like how much to charge for items on your menu for maximum profitability or when it’s time to look for new suppliers. With this knowledge, you’ll be able to optimize profits that impact your bottom line.

• What food cost percentage means

• How to calculate your food cost percentage using a food cost formula

• Why it’s important to calculate food cost percentage for your restaurant

• How to use food cost percentage to set menu prices

• How to make calculating food cost percentage easier

How to Calculate Food Cost Percentage

Want to master your restaurant’s finances and maximize profits? It all starts with learning how to calculate food cost percentage.

What Is Food Cost Percentage?

Food cost percentage indicates what proportion of your revenue is being spent on buying food and beverage supplies for your restaurant. Food cost percentage can be calculated in several ways.

Total food cost percentage examines the cost of all food supplies at your restaurant and total revenue over a certain period of time. Think of total food cost percentage as your high school GPA. Your GPA was an overview of your academic performance, but didn’t give much insight into which subjects you excelled in or struggled with.

Food cost percentage per dish, on the other hand, is like your report card: a subject-by-subject breakdown of your success in the classroom. Perhaps you excelled at math (which we’re equating to a low food cost percentage for your restaurant’s chicken piccata) but weren’t so great at history (a high food cost percentage for your lamb roast).

You can use food cost percentage data to reign in your overall food costs and uncover which dishes you could charge more for.

Food Cost Formula

Now that you understand total food cost percentage and food cost percentage per dish, here are the food cost formulas for calculating those figures.

TOTAL FOOD COST PERCENTAGE FORMULA

Want to figure out what fraction of your restaurant’s revenue is eaten up by food costs? Here’s the formula for total food cost percentage:

Total Food Cost Percentage = (Total Costs of Goods Sold / Total Revenue) x 100

Here’s a step-by-step look at how to implement this formula:

1. Calculate your Total Cost of Goods Sold (CoGS).

Your Total Cost of Goods Sold is how much the food and beverages you’ve sold over a given period of time cost your restaurant. You can figure that out with this formula:

CoGS= [(Beginning Food and Beverage Inventory Value) + (Inventory Purchase Value)] – (Ending Inventory Value)

First, take stock of how much your current inventory costs. Then, add in the cost of new inventory you purchased during the time period in question. Finally, calculate the value of your inventory at the end of the time period in question and subtract that from the cost of the inventory at the beginning of that time period.

Example: We’ll refer to fictitious restaurateur Sandra of Chez Sandra throughout our examples. Sandra wants to figure out what her total food cost percentage was in December. She figures that her total inventory was worth \$10,000 at the beginning of December and she spent an additional \$4,000 on food and beverage supplies in December. At the end of the month, the total value of her remaining inventory was \$6,000.

Value of Inventory of Food and Beverage at start of December: \$10,000

Value of Inventory Purchases in December: \$4,000

Value of Inventory at end of December: \$6,000

Sandra’s CoGS would be = [(Beginning Food and Beverage Inventory Value) + (Inventory Purchases)] - (Ending Inventory) = [(\$10,000) + (\$4,000)] - \$6,000 = \$14,000 - \$6,000 = \$8,000

Sandra used up \$8,000 worth of food and beverage inventory in December, also known as her CoGS.

2. Calculate your Total Revenue for the time period you’re interested in examining.

Example: Sandra checks her TouchBistro POS and learns that her restaurant earned \$26,000 in Total Revenue in December.

3. Divide Total CoGS by Total Revenue.

Example: Sandra’s Total CoGS for December was \$8,000 and her restaurant’s Total Revenue during that period was \$26,000.

\$8,000 / \$26,000 = .30

Example: .30 x 100 = 30%

Chez Sandra’s total food cost percentage in December was 30%.

You can apply this food cost formula to any time period you’d like – a specific week, month, year, etc.

Now, let’s dig deeper into the numbers to calculate food cost percentage per dish.

FOOD COST PERCENTAGE PER DISH FORMULA

Let’s say you want to understand the profitability of a specific item on your menu. Here’s how to figure that out:

Food Cost Percentage Per Dish = (Total Cost of Dish Per Serving / Price of Dish to Customer) x 100

Let’s examine this formula more closely:

1. Calculate what it costs for you to make a dish (a.k.a. Total Cost of Dish).

Find out the prices of the ingredients in the dish in question and add them up to figure out how much one serving costs you to make.

Example: Chez Sandra serves a chocolate mousse as a special holiday menu item in December. The mousse has been selling very well, but Sandra is worried that the ingredients are too expensive – biting into her profit margins – for the mousse to become a permanent fixture on the menu.

To figure out the mousse’s food cost percentage per dish, Sandra makes a list of the ingredients in her mousse: chocolate, cream, eggs, and sugar.

She then divides the ingredient quantities in her recipe by the number of servings the recipe yields to figure out what quantity of each ingredient is needed to make just one serving of chocolate mousse. She finds out that one serving of chocolate mousse requires one ounce of chocolate, one-quarter cup of cream, half an egg, and two teaspoons of sugar.

Sandra then calculates how much each of these quantities costs. Sandra buys four dozen eggs for \$12 from her supplier. This means that half of one egg would cost 16 cents.

Sandra calculates all of her other food costs and finds the Total Dish Cost for her chocolate mousse:

1 oz. chocolate – \$2.50
¼ cup cream – \$0.25
½ egg – \$0.16
2 tsps sugar – \$0.10

Total cost for chocolate mousse per serving: \$3.01

2. Find out Price of Dish to Customer.

This step is simple. Look at your menu. How much do you charge for this dish?

Example: Sandra charges \$6.00 for her chocolate mousse. Therefore, Sandra’s Price of Dish to Customer is \$6.00.

3. Divide Total Cost of Dish Per Serving by Price of Dish to Customer.

Example: The chocolate mousse costs \$3.01 to make and sells for \$6.00.

\$3.01 / \$6.00 = 0.5

Example: 0.5 x 100 = 50%

The chocolate mousse has a 50% food cost percentage per dish. Should Sandra keep it on her menu? Keep reading to find out.

Why It’s Important to Calculate Food Cost Percentage for Your Restaurant

Here are a few reasons why knowing your food cost percentage is important.

1. Understand how much you’re spending on food costs relative to other restaurants

Comparing your food cost percentage to industry benchmarks can reveal whether your food spending is normal or needs to be adjusted. Check out these industry benchmarks for food cost percentage:

Food and Beverage Category

Industry Benchmark Food Cost Percentage Range (%)

Overall

20-40%

Food

25-40%

Non-alcoholic beverage

10-30%

Wine

30-50%

Draft Beer

20-40%

Bottled/Canned Beer

30-35%

Liquor

10-20%

Mixed Drinks at Bar

5-25%

How do your total food cost percentage and food cost percentage per dish compare to these industry benchmarks?

After you determine where your food cost percentage falls along benchmarks, you’ll be able to understand the profitability of your dishes.

Let’s revisit our example with Sandra of Chez Sandra. Chez Sandra’s total food cost percentage of 30% is in a healthy range for the industry. However, the chocolate mousse’s 50% food cost percentage per dish is above the 25 to 40% industry standard range.

What does this mean? Sandra’s chocolate mousse is too costly of a dish by industry standards, and probably isn’t profitable enough to remain on the menu. If Sandra wants to introduce it as a permanent item on her menu, she should increase the mousse’s price or decrease the cost of the ingredients by finding more affordable suppliers without compromising quality.

We’ll explain how to use food cost percentage to help you determine how much to charge for dishes to ensure profitability.

How to Use Food Cost Percentage to Set Menu Prices

Knowing how your food cost percentage compares to industry standards can help you determine whether you’re 1) underpricing menu items, 2) overpricing menu items (which could be why they’re not selling), or 3) overpaying for supplies.

Here’s the scoop on how to use food cost percentage to set menu prices that are both profitable for you and reasonable for guests.

First, calculate your food cost percentage per dish for every item on your menu. Then note which items (including beverages) fall above and below the industry benchmarks.

For menu items whose food cost percentage is above the industry standard, we recommend:

• Increasing menu prices. Set a new price that lets you fall within the industry benchmark for food cost percentage and see how the new price affects popularity of an item. If cost is prohibitive for customers, and they buy less, you should consider removing the item from your menu. From our example, Sandra could price her chocolate mousse in the \$7.53 to \$12.04 range to meet the industry benchmark of 25 to 40% for food cost percentage.

• Looking for new vendors. To decrease food costs, look for vendors that can get you better prices on the items you use regularly. Ask friends in the industry for recommendations. If Sandra knew that customers wouldn’t spend more than \$6 on chocolate mousse, she’d have to get the cost of her ingredients down to the \$1.50 to \$2.40 per serving range to be profitable.

For menu items whose food cost percentage is below the industry standard we recommend:

• Increasing menu prices. You’re leaving money on the table! Increase menu prices gradually and see how customers respond.

Even if menu items fall within industry benchmarks, there is room to optimize profitability. You can consider:

• Increasing menu prices. If you’re on the high end of the benchmark (ex: 40% for food items) see if you can reduce the ratio to the lower end (25%). Imagine what a 15% decrease in food cost percentage could mean for your bottom line.

• Looking for new vendors. Again, see if you can negotiate lower prices with your current vendors or look for new vendors that can offer you lower pricing on food and beverage items to optimize your food cost percentage.

If these options don’t work for you, consider redesigning the layout of your menu. Menu optimization is proven to increase profits by 10 to 15%.

Another option is to reduce portion sizes and keep prices the same so that you decrease your cost per serving.

How to Make Managing Food Costs Easier

Calculating food cost percentage can be tedious. You have to keep track of your inventory, look through invoices to track food costs, and check reports to see how much you brought in in sales. Even the most organized restaurateur would find this calculation nightmarish.

Fortunately, tech is making calculating food cost percentages and managing food costs easy. Beyond serving as your digital cash register, a restaurant POS can calculate food cost percentages, cost of goods sold, cost per item per dish, and more. You can know your food cost percentage and margins within a few seconds, rather than figuring them out the old school way.

Learning how to calculate food cost percentage will do wonders for your bottom line. When you know how much a menu item costs your restaurant you to make, you can optimize menu prices to boost your profit margins. The more you know about your restaurant’s finances, including food percentage cost, cost of goods sold, and prime costs, the easier it is for you to make decisions about pricing, inventory, marketing, and hiring.