Food cost is the ratio of inventory of goods on hand vs the menu items you have sold within a given time period. It is one of the most important data points a restaurant can use to assess its financial health.
You can look at food cost as a percentage of sales (food cost percentage) or take a more granular view and look at each dish’s ingredient cost compared to its selling price (also called per-item food cost, or portion cost). In this article, we will walk you through how to calculate both food cost and portion cost using our food cost calculator and portion cost template.
How to Calculate Food Cost
To figure your overall food cost, you’ll need to gather four key numbers: your starting inventory, purchases, ending inventory, and sales. The figures come from your physical inventory counts and your point-of-sale (POS) reports. So, the first step to figuring your food cost is to physically count your inventory. You’ll need two inventory counts at least a week apart to get an accurate food cost. You can figure your food cost on the day you complete the second inventory count.
Once you have your inventory counts, here is where to find each of the necessary figures:
- Starting inventory: This is the dollar amount of the value of your total inventory from your previous inventory count.
- Purchases: This is the dollar amount total of all of your food purchases since your last inventory count.
- Ending inventory: This is the total dollar value of the most recent (i.e., today’s) inventory count.
- Sales: This figure comes from your POS system (or cash register if you don’t use a POS). This is the total dollar amount of food sales (not total sales, just food sales) for the timeframe between your inventory counts. So, if you count weekly, you’ll want the weekly food sales. If you count monthly, you’ll want the monthly total.
Food Cost Formulas
There are multiple ways these figures can fit together. It can be useful to know how the numbers work together when you are managing a restaurant, or if you are creating an inventory count spreadsheet to figure your food cost for you. We’ve included the detailed formulas for you below.
Overall Food Cost
The first formula you need for figuring your food cost is for cost of goods sold, better known as COGS. The way to find this number is to use the following formula:
COGS = (Opening Inventory + Purchases – Closing Inventory)
Your cost of goods should include just food-related items. It should not include alcoholic products, napkins or straws, or other non-food items. There are cost guidelines for those, but food costs involve all food items within your inventory.
Then to calculate the overall food cost, we are looking at a very straightforward formula. The formula for overall food cost percentage is:
Food Cost = (COGS / Food Sales x 100)
The best way to calculate overall food cost is to use a month’s timespan so that you can have enough data to see where you are at. Monthly food cost check-ins are the standard for most food businesses.
Per-item Food Cost (Portion Cost)
Restaurant Portion Cost Template
Per-item food cost, or portion cost, is a view of each individual dish on a menu, looking at how much the dish costs compared to its selling price. The portion cost template above is formatted to make this calculation easy. The template includes two options: a simple portion cost calculator and a recipe sheet that calculates your portion cost but also preserves your full recipe with cooking instructions.
It can save administrative time—and ensure you actually do the math—if you figure the portion cost as you write your recipes. Tracking ingredient costs in your recipes also allows you to quickly substitute ingredients. If prices rise on a product, you know what price you can afford to pay for a replacement.
To find the per-item food cost, you simply itemize all the ingredient costs in the dish and divide it by the sale price of the dish itself. To find the ingredient cost in a dish, you will need to know the amount of the ingredient you are using in the dish and the cost per unit that you paid for that ingredient.
For example, if a recipe calls for 1 ounce of butter and a pound of butter is $3.18, you would divide $3.18 by 16 (the number of ounces in a pound) and come up with 20 cents per ounce. This would mean that the ingredient of 1 ounce of butter in your recipe costs 20 cents. Do this with the rest of your ingredients to get the total cost of your ingredients.
Portion cost is integral to building your menu; it allows you to understand where you need to price each menu item and the ingredients you can use. For example, let’s say your target food cost percentage is 30%. If you had a dish selling at $20 that was extremely popular, but it costs $12 to make, you would be at a 60% portion cost on the dish, which is way over your budget. So the more you sell that dish, the further away you get from your food cost target. To balance your food cost, you could either raise the menu price or use less expensive ingredients.
Knowing your portion cost, or per-item food cost, allows you to align each dish’s price to hit your financial goals. To hit that 30% food cost goal, it is most efficient to make each portion cost in your menu 30% when compared to sales price.
Why Calculating Food Cost Is Important
Calculating food cost percentage is important for a number of reasons. First and foremost, it allows you to see the financial health of your business and the effectiveness of your managing style. Food cost is affected by a number of factors, with waste and improper training being two of the major causes of high food costs. When you calculate your food cost, you can see where you have gaps in staff training and management. Use this information to align your staff to an operating system that helps you hit your financial goals.
Food cost also shows you how vendor pricing affects your overall business. If prices fluctuate, then so will costs. With this information, you can bargain for better rates with your vendor or take your business elsewhere. Finally, food cost dictates the kind of food you can sell on your menu compared to what customers are willing to pay. You can use this information to create a very appetizing menu while optimizing your operation to make more profit.
Menu Price Based on Food Cost Percentage
Your menu pricing is most clearly dictated by what you can put on the menu. As we shared above, building your menu items to a portion cost percentage is the best and most foolproof way to ensure you hit your overall food cost percentage goal.
You will need to also understand what context each dish has in your menu. If you are selling an appetizer, you are most likely pricing this dish around $10. If that is the case, the food cost of the appetizer cannot go over $3 if your goal is a 30% food cost. The context in the menu and your overall food cost percentage goal, along with our portion cost calculator, is the best way to price your menu and operate within a cost that helps you make a profit.
Tips for Controlling Food Cost
Food cost can be very tricky to manage. Below are some tips on how to get better control of your food cost percentage.
Sufficient Staff Training
As stated above, training your staff is key to managing food cost. Waste and improper usage of ingredients in a recipe consistently can kill any food cost goal. Ensure your staff is not only trained but aware of the financial impact their accuracy has on the operation.
Vendor Pricing & Invoice Comparison
It is imperative that each month, or even each week, you sit down and compare the pricing of goods bought from each of your vendors. You want to check invoices and pricing guides to ensure you are paying amounts you are comfortable with and that you are paying for goods you have received and nothing more.
Weekly Inventory
Doing consistent weekly inventory can be key to collecting your data and understanding the cost of the goods you sell. You can also do a “soft” food cost calculation, seeing where you are from week to week. Then do a more detailed analysis at month’s end so you have the best information to make changes or adjustments to your operation.
Restaurant Food Cost Frequently Asked Questions (FAQs)
Last Bite
Food cost percentage is a key part of operating a restaurant or other food business. It is the bread and butter of how you price your menu items and also shows you weak points in your day-to-day operation. Our food cost percentage calculator allows you to find your food cost with ease and precision. Meanwhile, our portion cost template allows you to maximize the selling price of your menu items to hit your financial goals. Keep these tools saved and use them consistently to manage and maintain profitability in your food business.
