Food cost is a key metric for any restaurant. It’s the total cost of all ingredients used in all dishes over a period of time, divided by the total sales for that same period. The result is your food cost percentage.
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Here’s How to Calculate Food Cost Percentage
There are a couple ways to calculate your food cost percentage. The most common way is to take your total food cost for a period of time and divide it by your total sales for that same period.
Simple Formula
Food Cost Percentage = Food Cost / Food Sales * 100
Example
Let’s say we want to calculate the food cost percentage for a pizza. The pizza costs $3.50 to make and is being sold for $10.00.
To calculate the food cost percentage, we would divide $3.50 (the food cost) by $10.00 (the food sales). That’s 0.35. Then we multiply by 100 to get the food cost percentage: 35%.
So, 35% of the selling price is going towards the food cost.
Advanced Formula
Another way to calculate food cost percentage is to use a formula that takes into account the portion size of each dish and the cost of each ingredient.
This method is used by restaurants that want a more precise food cost percentage. Most modern restaurant software with inventory management and analytics can give you this data.
Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Example
Beginning Inventory = $500
Purchases = $1,000
Ending Inventory = $200
Food Sales = $2,500
Food Cost Percentage = (500 + 1,000 – 200) / 2,500
Food Cost Percentage = 1,300 / 2,500
Food Cost Percentage = 0.52 or 52%
With a food cost that high, you’ll want to consider your options to reduce your food cost or increase your prices as you’ll learn below.
No matter which method you use to calculate your food cost percentage, as a restaurant manager you should be tracking this metric regularly. That will help you see trends and make adjustments to your menu or operations to keep your food cost percentage in check.
Why Food Cost Percentage is Important
As a food service business your food cost percentage is a key metric to track. It’s the total cost of all ingredients used in all dishes over a period of time, divided by the total sales for that same period. The result is how well you’re controlling your costs and how profitable your business is.
Want to know if your food cost percentage is normal? Compare it to the industry standards below. Having this info will help you make changes to keep your food spending in check.
| Food & Beverage Category | Industry Benchmark Food Cost % |
| Overall | 20-40% |
| Food | 28-35% |
| Non-alcoholic beverage | 10-30% |
| Wine | 35-45% |
| Draft beer | 15-18% |
| Bottled/canned Beer | 24-28% |
| Liquor | 18-20% |
| Mixed drinks | 5-25% |
Using Food Cost Percentage to Set Menu Price
If you want to set menu prices that are profitable and reasonable you’ll need to calculate your food cost percentage for each dish. That will tell you which items are above or below the industry standards. Then you can adjust your prices accordingly.
Remember food cost percentage is just one factor to consider when setting menu prices. You’ll also need to think about overhead costs, labor and desired profit margins. But with a little planning you can create a pricing strategy that works for you.
If an item on your menu is above the industry standard you have a few options.
- One is to increase the price of the item to get within the standard.
- Another is to find new food distributors who can give you better prices on the ingredients for that dish.
If customers won’t pay more for an item you may need to remove it from the menu altogether.
Tracking Food Cost Percentage Over Time
Tracking your food cost percentage over time will help you see trends and make changes to your menu or operations. Doing it regularly will keep your food cost percentage in check and your business profitable.
Conclusion
If you’re in the food service business then you know one of the most important factors to your success is your food cost percentage. This number is what percentage of your total sales is going towards food and it’s a key metric for your overall profitability.
You can calculate food cost percentage a few different ways but the most common is to take your total food cost for a period of time and divide by your total sales for that same period. This will give you a decimal number that you can then multiply by 100.
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