How to calculate food cost percentage

To calculate food cost percentage, divide cost of goods sold by sales and multiply by 100. Cost of goods sold (COGS) is beginning inventory, plus purchases, minus ending inventory. If a store starts the month with $14,200 of inventory, buys $38,600, and ends with $13,800 on the shelf, it used $39,000 of product. On $130,000 of net sales, that is a food cost of 30.0%.

That is the period food cost. There is a second number worth knowing: plate cost, the food cost of one menu item. Period food cost tells you what the store actually used. Plate cost tells you what each item should cost. You need both.

The food cost formula

Food cost % = (beginning inventory + purchases − ending inventory) ÷ net sales × 100

Here is each part.

1. Beginning inventory is the value of food and paper on hand at the start of the period. It is last period's ending count.
2. Purchases are everything delivered during the period, at invoice cost, after credits.
3. Ending inventory is the value on hand when the period closes, from a physical count.
4. Net sales is sales after discounts, before tax and tips.

The first three lines together give you cost of goods sold. That is the product the store actually used, whether it was sold, wasted, given away or lost.

Why purchases alone are not food cost

Many owners divide purchases by sales and call it food cost. That works only when inventory stays flat. In the example above, purchases were $38,600. Divide that by sales and you get 29.7%, which understates food cost because the store used $400 more product than it bought.

The gap can be much bigger. A store that stocks up before a holiday will show a high purchase number one month and a low one the next. Neither tells you what was really used. Only a count does. Our guide on how to take restaurant inventory covers how to make the count quick and consistent.

What counts in cost of goods sold

Include:

• Food and beverage that goes into what you sell
• Paper and packaging, if your concept tracks food and paper together
• Freight and delivery charges on food orders
• Credits and returns, subtracted from purchases

Leave out:

• Cleaning supplies, smallwares and equipment
• Office supplies
• Product transferred to another store, which comes off your purchases and goes on theirs

Staff meals are a choice. Some operators keep them in food cost. Others record them separately so food cost only reflects what was sold. Pick one and stay with it.

If you sell alcohol, calculate food cost and beverage cost separately, each against its own sales. Beer and wine usually run at a different cost percentage, and mixing them hides movement in both.

How to calculate plate cost

Plate cost is what one menu item costs to make. It is also called recipe costing. Here is how to do it.

1. Write down every ingredient in the recipe, including sauces and garnish.
2. Note the portion used, in the unit you buy it in.
3. Take the cost per unit from your latest invoice.
4. Adjust for yield. If you lose part of an ingredient to trimming, divide the cost by the usable share.
5. Add packaging, if you track food and paper together.
6. Add it all up, then divide by the menu price.

Yield matters more than most people think. A 24-pound case of tomatoes at $36 costs $1.50 a pound as bought. If 15% is lost to cores and ends, the usable cost is $1.50 ÷ 0.85, or about $1.76 a pound. Skip that step and every item with tomato looks cheaper than it is.

Read plate cost in dollars as well as percent

The burger alone runs 41.1%. That looks high. But fries cost about $0.62 to serve and sell for $3.40, around 18.2%. A drink costs about $0.41 and sells for $2.80, around 14.6%.

Sold as a combo at $13.49, the three items cost $4.93. That is 36.5%, and the store keeps $8.56 on the order instead of $5.59 on the burger alone. A higher-percentage item can still earn the most dollars, and the items that ride along with it bring the blended percentage down. Our guide on how to increase average check covers getting more orders to carry those add-ons.

Theoretical food cost and why it matters

Once every item has a plate cost, you can work out theoretical food cost for a period. Multiply each item's plate cost by how many you sold, using the product mix report from your POS. Add it all up and divide by net sales.

Theoretical is what food cost should have been if every portion was right and nothing was wasted. Actual is what the inventory count says it was. The gap between them is your variance: waste, over-portioning, unrung items and theft. Our guide on how to lower food cost with actual vs theoretical variance walks through finding and closing that gap.

What is a good food cost percentage?

There is no single right number. Many quick-service operators run somewhere around 28% to 35% for food and paper combined. Full-service and premium concepts often run higher. Ranges vary by menu, region and service model.

Two comparisons matter more than any benchmark:

• The store against its own recent periods. A two-point rise at the same store, with the same menu, is a real signal.
• The store against similar stores in the same brand. If the middle store runs 29% and yours runs 32%, the menu is not the reason.

Food cost is also half of prime cost. See how to calculate prime cost for how it combines with labor.

Common food cost mistakes

• Using purchases instead of cost of goods sold. Inventory changes distort it.
• Counting on different days. If one count is on Sunday night and the next is on Tuesday morning, the periods do not match.
• Valuing inventory at old prices. Use the latest invoice cost for each item.
• Mixing gross and net sales. Use net sales every time.
• Leaving plate costs untouched for a year. When beef or bun prices rise, the plate cost rises with them. Update your highest-volume items at least every quarter.
• Ignoring yield. Trim loss is real cost.
• Reacting to one week. Weekly numbers swing with delivery timing. Look for a trend over three or four weeks.

A simple weekly habit

1. Every Monday, pull last week's net sales and food and paper purchases.
2. Count your five to ten highest-cost items, such as beef, cheese, chicken, fries and cups. Adjust purchases for the change in those items since last week.
3. Work out an estimated weekly food cost percentage.
4. Compare it with the last four weeks and with your theoretical food cost.
5. If it is up more than a point for two weeks running, check portions on your top items and look at the waste log. Our guide on how to reduce food waste has a simple way to track it.
6. Do a full count at period end and calculate the real number.

Update plate costs on your top ten items whenever a major supplier price changes. That is often the moment to look at menu prices too.

Franlever connects to your POS and to QuickBooks or Xero. Its AI COO compares each store with its own recent weeks and with the middle store in its brand, and sends the owner one specific lever when something is worth acting on.

General information for restaurant and franchise operators, not legal, tax, accounting or financial advice. Figures in examples are illustrations, not predictions or promises of results. Laws and platform policies change and differ by location, so check the current rules and talk to a qualified advisor about your situation.