Calculating food cost percentage can be time-consuming and a little confusing, but it doesn’t have to be. With the right formulas and resources, you can unlock one of the most important restaurant metrics and optimize your business for success.
Why is calculating food cost percentage important? For starters, 52% of restaurant professionals named high operating and food costs as a top challenge according to Toast's 2019 Restaurant Success Report.
In this post, we’ll share our food cost percentage formula, show you how to calculate food cost percentage, and help you understand why it all matters.
To help you get to the bottom of your food cost percentage, the team here at Toast developed a free Food Cost Calculator. Here’s how it works.
First, we have you enter the type of concept you run and in what state.
Then, it shares the five most popular items (and their price breakdown) on similar restaurant menus in to your state. Then, it allows you to dive into these menu items to calculate each item’s food cost, plus cost per pound and/or cost per cup for each ingredient.
It also gives you the ability to create your own custom menu items and determine the ideal price for them, so play around with it and start brainstorming on how you can improve your food cost percentage.
How to Calculate Food Cost Percentage?
Food cost percentage is calculated by taking the cost of good sold and dividing that by the revenue or sales generated from that finished dish. Cost of goods sold is the amount of money you’ve spent on ingredients and inventory in a given time period – we’ll show you how to calculate that, too.
It’s nice to know if individual items are profitable or not, as we’ll explain below, but you also need to know if your entire business is on track for success.
On average, food cost percentage is 28-32% in many full-service and quick-service restaurants. How can you find this number for your restaurant? Start with your weekly inventory.
- List all the food supplies you received at the start of week. Many inventory management systems work on tablets or handheld devices, so you can walk around back of house checking off items like you would on a clipboard.
- Add together the dollar value of each item. How much did you pay for each box of chicken in your back of house?
- Track your purchases. Were there any other purchases that you made within the week, after beginning inventory?
- Take inventory again at the beginning of next week. Follow the same exact process. Many recommend a shelf-to-sheet system, where your inventory tracking system is set up like your back-of-house is.
- Add together total food sales per shift. Many POS systems with restaurant analytics can provide you with this information automatically.
- Calculate actual food cost for the week using the following food cost formula: Food Cost Percentage = (Beginning Inventory + Purchases – Ending Inventory) ÷ Food Sales
Check out the example below to see this food cost percentage formula in action:
- Beginning Inventory = $15,000
- Purchases = $4,000
- Ending Inventory = $16,000
- Food Sales = $10,000
- Food Cost Percentage = (15,000 + 4,000 – 16,000) ÷ 10,000
- Food Cost Percentage = 3,000 ÷ 10,000
- Food Cost Percentage = 0.30 or 30%
Quick Tip: Is your food cost percentage dramatically high or low? Make sure you’ve counted each item correctly, entered the right unit, and accounted for each purchasing invoice.
How Do You Calculate Ideal Food Cost Percentage?
It’s often not enough to calculate total food cost and call it a day.
You need something to compare it to ensure that your restaurant is on track. You can do so by comparing your actual food cost with your ideal food cost. In an ideal world, there would be no food waste or theft in your restaurant.
The calculation for ideal food cost percentage doesn’t take into account your beginning and ending inventories. Instead, it accounts for the total costs and sales associated with each dish or menu item.
How to Calculate Food Cost per Serving (or food cost per menu item):
- Food Cost Per Dish = Food Cost of Ingredients x Weekly Amount Sold
- Total Sales Per Dish = Sales Price x Weekly Amount Sold
Now that you’ve calculated your food cost per dish, here’s the formula for calculating ideal food cost percentage: Ideal Food Cost Percentage = Total Cost Per Dish ÷ Total Sales Per Dish
Check out the example below to see this ideal food cost percentage formula in action:
- Total Cost Per Dish = $2,500
- Total Sales Per Dish = $10,000
- Ideal Food Cost Percentage = 2,500 ÷ 10,000
- Ideal Food Cost Percentage = 0.25 or 25%
In the examples shared above, ideal food cost percentage comes out to 25% and actual food cost percentage comes out to 30%. Now we know there’s an extra 5%, either due to waste, theft, or additional purchasing. Ultimately, you want your actual food cost to match or even be below your ideal food cost.
How Can You Optimize Food Cost Percentage?
There are many ways to optimize your food cost percentage. Here are a few:
- Be smart about your menu pricing. Try raising prices on your menu by a small amount.
- Try menu engineering to identify which menu items are bringing in the most profit and update your menu accordingly.
- Use plenty of carbs on your menu. Why? Because items like potatoes and pasta are generally cheaper to buy in bulk.
- Get creative with your restaurant menu design to strategically suggest and promote more profitable items to guests.
- Shop around at different wholesale food sellers like US Foods so you can find the best prices for your restaurant.
- Keep an eye on portion sizes. Are many of your dishes coming back half-eaten? You may want to consider reducing your portion sizes.
- Don’t give away too many freebies, such as bread and butter, if your actual and ideal food costs are way off.
- Adapting your menu along with seasons can help you save on food costs. Food items and produce that are in season will be cheaper, and seasonal items that are trending with customers will help with popularity and profitability.
How Do You Price Your Menu with Food Cost Percentage in Mind?
Your menu prices need to meet the needs of your bottom line but also the needs of your target market. Toast’s Food Cost Calculator suggests menu prices for the top five items according to your restaurant concept and location based on ideal food cost percentage. Here’s the formula we use, though it isn’t foolproof:
- Find portion cost, or total cost of ingredients within a dish or recipe.
- Divide this by a target food cost percentage. You can choose what this percentage should be and move it around as you wish.
- Round up or down. Keep menu prices simple and round up or down.
When you’re pricing your menu, you should also consider your local market. If demand is high for a particular menu item in your area, you may want to sell it for more or less, depending on what the market can bear. You’ll also want to consider labor costs, rent, overhead costs, and more when pricing your menu.
Your menu is the key to your revenue, and Toast’s Food Cost Calculator can help you calculate individual recipe costs, automatically convert units, and get suggested menu prices for your restaurant.
Why is Food Cost Percentage So Important?
In short, food cost percentage is important because keeping a close eye on and optimizing food cost percentage can help you achieve maximum profit.
Let’s say that Joe runs a successful restaurant that serves 350 customers per day. If he doesn’t pay attention to his food costs, and his menu items are mispriced by 75 cents, Joe could lose $100,000 in revenue per year. See how what you might think is pocket change can really add up?
Taking the extra step to calculate food cost percentage and cost of goods sold down to the individual cookie, slice of bread, or burger helps your restaurant in the long run.
The most successful franchises and restaurant chains also understand the value behind keeping a close eye on food cost. For example, if McDonald’s sells 68 million burgers a day, and they are off by a single penny on their cost of goods sold, then they’re losing $680,000 per day… or $248 million per year.
Here are four benefits to knowing food cost percentage.
1. You can spend and earn smarter
By pricing each menu item based on food cost percentage and cost of goods sold, you can ensure that each menu item fits within your food cost margins. From there, you’ll know which menu items are most profitable and, in turn, which items to promote.
2. You’ll efficiently engineer your menu
With food cost percentage data integrated with your point of sale, you can update menu items that are no longer profitable. Menu engineering based on food cost percentage will give you the insights you need to decide whether to retire, change, or re-price a menu item.
3. You’ll better understand how food supplies impact costs and profitability
In 2018, a poor growing season left the world with a shortage of vanilla, making the price for the spice skyrocket. Bakeries and other restaurant concepts with an emphasis on desserts and baked goods felt the impact of this shortage. Keeping an eye on farming trends and even international trade negotiations – the 2018/2019 US-China trade war has had a huge impact on American farmers – is an important part of understanding and managing inventory costs.
4. You can intelligently experiment with new recipes
Make a new recipe and see if it aligns with your ideal food cost percentage – more on ideal food cost percentage below. If it doesn’t, see if you can adjust the recipe at all, or maybe you store it away for another time.
Calculating food cost percentage can be a bit challenging, but by using the formulas and resources above, you'll be on your way to successfully calculating and optimizing food cost percentage for your restaurant.
This post was originally published in 2015 and has since been edited for accuracy and comprehensiveness.