Why a Food Cost Calculator is an Essential Ingredient for Restaurant Success

If you hope to turn a profit as a restaurant owner, your math needs to be as good as your menu. It’s important to not only serve up interesting and delicious dishes, but your selections and pricing of each item need to be done with your business goals in mind. In other words, you need to wrap your head around the idea of food cost percentage.

What is Food Cost Percentage?

Simply put, food cost percentage is the ratio between the total cost of your ingredients and the amount of revenue generated from selling each dish. Most experts say that you should try to end up with an average restaurant food cost percentage of around 30%.

According to RestaurantReport.com, a profitable restaurant typically generates a 28%-35% food cost. The article also points out that different types of restaurants may have different food cost goals, with steak houses running up to 40%, versus 35% for an American/Regional menu themed restaurant.

Not only will this calculation help you price your menu items correctly, but it can also help you identify any food waste so that you can work to make improvements and boost your bottom line. Keep reading as we break down restaurant food cost and how to use a food costing formula to drive up your revenue.

restaurant chef training chef

Menu Money Matters

Regularly monitoring restaurant food cost will help determine when you need to make adjustments to your menu prices or switch up the types of ingredients or quantity of items you’re purchasing. It can also help you gauge if there’s a discrepancy is between your food cost percentage and what your actual food cost is.

Let’s explain… Although figuring out your food cost percentage is a good place to start, you also want to gauge if there’s a discrepancy between your ideal food cost percentage and your actual food cost. The ideal cost is the calculation mentioned above – the food cost percentage based on what you’re spending on ingredients and how much you’re selling it for. However, not every dish that’s served might include the exact amount of ingredients if portion sizes aren’t measured. Also, some food might spoil or be spilled.

Food can account for 35% of expenses. Find out if you’re spending too much with our Food Cost Calculator.

So your actual cost will factor in both your beginning and ending inventory (and any extra purchases you made in between), to give you a more accurate view of what your food cost percentage is. It will always be slightly higher than the food cost percentage, but your goal is to make sure that it’s not significantly higher. That would indicate that portion sizes are off or that there is unnecessary food waste – both of which can be prevented.

Food cost percentage = Total spent on ingredients/Food sales
Actual Food Cost percentage = (Beginning inventory + Purchases – Ending inventory) / Food sales

Example: The menu cost of your chicken fingers and fries meal is $12, while your total ingredient cost is $4. Dividing $4 by $12 leaves you with a food cost percentage of around 30%. But let’s say that some of the chicken fingers are left out of the freezer accidentally and have to be thrown away. That would now drive up your actual food cost percentage because you won’t be able to sell them. You would only figure this out by tracking your inventory.

Restaurant manager checking food quality in the kitchen

Next Steps

Once you figure out your restaurant food cost, if you find that it’s higher than you’d like, you can look for ways to increase profitability. Here are some strategies to consider:

POS Systems to the Rescue

Restaurant POS, inventory, and food costing software management platforms like Upserve can do all of the heavy math lifting for you. Upserve helps you manage your inventory, keep track of purchases, and calculate your food costs.

And don’t forget – your restaurant food cost is just one part of your business calculation. You’ll also have to factor in your rent, utilities, labor cost, and other expenses when deciding on how to price your menu. 

By making food cost calculations a part of your recipe for success, you can ensure that your restaurant will thrive and profit for years to come.