Next to labour costs and rent, food costs are the highest expense for every restaurant. The average restaurant food cost percentage is between 28% and 32% of total food sales, with peaks up to 45%.
In the restaurant industry, profit margins are thinner than a stroopwafel. So you need to know how to calculate and manage food costs. But it’s not as simple as plugging food production costs and sales figures into a food cost calculator.
In this post, we’ll explain how to calculate your food costs using formulas and explore the factors that can drive up food costs.
Food Cost vs. Food Cost Percentage
In the restaurant world, people often use the terms “food cost” and “food cost percentage” interchangeably. There’s a slight difference, though, between these two metrics:
Food cost is the base figure you’ll need to calculate food cost percentage.
Food cost percentage is your food costs in relation to your revenue.
To calculate food cost, you’ll need starting and ending inventory values, along with the value of inventory purchases within that date range. Then you’ll convert that number to a percentage that shows how your total food costs compare with revenue.
Food Cost and Profit Margins
Let’s look at how food cost impacts your gross profit (GP).
Your GP is the difference between your revenue and the expenses related to the production of goods. In the example below, the left column shows food costs consuming 35% of revenue. Reducing your restaurant’s food costs by just 5% boosts profits significantly, as the right column shows.
A reduction in food costs has an exponential effect on profits. In this example, a 5% reduction results in a 58% increase in profits.
4 Essential Food Cost Calculations
There are four main calculations to know for understanding food costs:
Comparing these figures will help you adjust workflows and maximise profitability.
How to Calculate Food Costs?
‘Food cost’ is a term widely used in the restaurant industry. However, depending on the context, the exact meaning can vary. In this case, we are talking about the actual food cost.
Actual food cost shows the real cost of the food used over a certain period of time. It is a calculation based on inventory depletion in a given period. Here’s how to calculate actual food costs:
1. Define your timeframe
To calculate food costs, you need a start and end range. That could be a week, a quarter, or whatever makes sense for your business.
2. Document your beginning inventory
Nobody likes a stock count. It’s time-consuming and, quite frankly, boring. But it’s essential for understanding restaurant food costs. (This process is now easier than it once was, thanks to inventory software).
Record your total inventory value — you’ll need this figure for your food cost formula.
3. Track inventory purchases
Track your inventory costs during the date range you defined. If you’re already using software to manage periodic inventory replenishment (PAR), your costs should be available through that platform.
4. Assess your ending inventory
Now, it’s back to the stockroom (or your inventory software) to assess the value of your ending inventory. With that figure, you’re ready to populate the food cost formula, as shown below.
The actual food cost formula
Example of actual food cost calculation formula
Starting inventory = £10,000
New purchases = £4,000
Ending inventory = £11,000
Actual food cost = £3,000
To see your food cost percentage, divide your food cost by turnover (revenue), then multiply by 100, as shown below.
Ideal food cost and theoretical food cost are figures that can help restaurant operators evaluate menu pricing, but of the two, only theoretical food cost is a true restaurant metric. Here are the key differences:
Ideal food cost
Theoretical food cost
Calculation is based on an arbitrary goal
Calculation is based on real-time ingredient prices and recipe costing
Goal is a percentage, not a dollar-figure
Expressed as a dollar-figure or a percentage
Doesn’t eliminate variables
Accounts for exact portions and ingredient costs
Idealfoodcost is an arbitrary target
Ideal food cost is the target percentage of your sales that you aim to spend on food.
For example, you might decide that 30% of your total sales should go toward food. This number usually comes from industry averages or what you think is realistic. But it’s just a general goal. It doesn’t account for real ingredient prices, portion sizes, or factors like waste and fluctuating costs.
To effectively manage daily food costs, you need more detailed insights. This is where theoretical food cost comes into play. It’s a calculated metric that helps you better understand your restaurant’s performance.
Theoretical food cost is a calculated target
Theoretical food cost is a detailed analysis that combines your recipe costings with your sales mix.
It calculates the cost of each menu item using current ingredient prices and portion sizes. This cost is then multiplied by how often each dish is sold over a given period. The result shows how much the restaurant should have spent on ingredients during that time—whether a day, week, or month.
For example, a poke chain’s development chef calculates each menu item’s cost based on recipes and real-time ingredient costs. He determines that the salmon poke bowl costs £3.71 to produce. The restaurant sells the salmon poke dish 134 times in a certain week, so the total production cost should be £497.14 (£3.71 x 134) for that week. If the total revenue for the week were £33,542, the theoretical food cost percentage of the bowl would be 1,40% ((£497.14/£33,542) x 100). The summary of all menu item costs divided by the total revenue of a given week gives them their total theoretical food cost percentage.
How to Track Menu Item Costs in a Spreadsheet
Recipe costs are essential for calculating food costs and setting menu prices. If you don’t have time to manually calculate each recipe cost or tweak pricing and portion sizes, you can use costing software to find the optimal price for healthy profit margins. However, if you prefer a hands-on approach, you can create a food cost calculator using Excel or Google Sheets. It’s basic but effective. Here’s how.
Create 6 columns in Excel or Google Spreadsheets with the following headings:
Menu Item (Ingredients)
Unit
Quantity Used
Ingredient Cost/kg
Cost/Serving
Recipe Cost
Add the numbers in the recipe cost column to calculate your total recipe cost.
Start costing your recipes with a menu item food cost spreadsheet in Excel or Google Sheets.
If you are a spreadsheet wizard, make things easier for yourself by creating a separate list with all your ingredients, including the current price and unit. Link these to columns A and D, respectively. When prices change (and they change often), you won’t have to update every single recipe sheet. Simply update the ingredients list to update all recipes with current supplier prices.
Calculate & Control the Ideal Food Cost
Discover how to calculate and control the ideal & actual food cost to develop profitable menus.
Food cost variance is the difference between the cost you expect to spend on food (theoretical food cost) and the cost you actually spend (actual food cost).
This comparison helps restaurant managers assess whether the costs of goods sold (COGS) are under control. The goal is to keep the difference between theoretical and actual as small as possible⎯the closer to zero, the better.
Looking at the theoretical and actual costs individually is helpful, but comparing them offers a clearer picture. A large variance could indicate operational issues, such as over-ordering, ingredient waste, or paying more than anticipated for supplies. Investigating the cause of the variance will help you address the problems and improve profits.
For example, going back to the earlier example of the salmon poke bowl. The chef calculated the dish’s theoretical food cost for the week at £469. However, that week’s inventory count revealed actual food costs were £490. There’s a variance. This impacts profit margins. The restaurant owner asks the chef to investigate why the actual costs exceed the theoretical.
The chef is quickly able to rule out two common causes:
Portion size: The kitchen staff followed the recipe portions precisely.
Spoilage or waste: The ingredients used for the poke bowls were fresh, and no significant waste was recorded in the restaurant’s food waste log.
Upon further investigation, the chef discovers the root of the problem: the procurement manager didn’t accurately forecast demand and failed to order enough edamame. As a result, the restaurant had to place a rush order mid-week, increasing the cost of that ingredient.
By identifying and correcting the issue, the restaurant can avoid future variances, helping to protect profit margins. Without tracking food cost variance, the impact of such discrepancies might go unnoticed, leading to inflated costs and reduced profitability.
How Food Cost Variance Helps Compare Restaurant Performance
Meet Big Bang Bagels, a restaurant chain with 10 outlets across Europe and the UK. The head office asks the management of the Brussels and Amsterdam locations to report their food cost percentages for week 34.
Here’s what they find:
Big Bang Bagels Brussels:
Actual food cost: 30%
Theoretical food cost: 27%
Food cost variance: 3% (3% higher than expected).
Big Bang Bagels Amsterdam:
Actual food cost: 35%
Theoretical food cost: 34%
Food cost variance: 1% (1% higher than expected)
At first glance, Brussels might seem to be performing better because its actual food cost is lower than Amsterdam’s. However, the food cost variance tells a different story: Amsterdam’s is closer to zero, meaning they are more effective at controlling costs.
Breaking Down the Numbers
Assume both locations generate £1 million in sales for the month.
Brussels’ 3% variance means they overspent by £30,000 that month, or £360,000 annually.
Amsterdam’s 1% variance means they only overspent by £10,000 that month.
Although Amsterdam’s actual food cost is higher, the team has tighter control over their spending. The higher cost alone doesn’t reveal much—they may be dealing with more expensive suppliers or higher-priced ingredients. However, those factors are already included in their theoretical food cost. In contrast, Brussels is losing money by overspending on food beyond what was expected.
A significant gap between expected and actual food costs signals potential operational problems, such as wasted ingredients, over-ordering, or paying more than expected due to price changes. By monitoring food costs and regularly tracking food cost variance, restaurant managers can quickly identify issues and make informed decisions to avoid future losses.
What Causes Food Cost Variance?
If the actual food cost in your restaurant or hotel is higher than the ideal food cost (aka theoretical or target food cost), the reason can always be traced back to one or more of these seven causes:
Waste
Inconsistent or poor portion size
Lack of delivery reconciliation
Theft
Accounting error
Missing sales data
Outdated cost calculations
Is your food cost variance growing? Discover practical tips for better food cost control and close the gap between actual and theoretical costs.
How Penta Hotels Uses Food Cost Software
John King is the corporate executive chef of Penta Hotels, a worldwide multi-outlet hotel business (Linkedin).
King replaced manual food cost calculations with Apicbase software so he could calculate food cost percentages across all locations.
“Apicbase significantly saves time by ensuring accurate and consistent food cost calculations for our recipes, which directly improves profit margins across all our hotels.”
John King Corporate Executive Chef at Penta Hotels
Executive chefs, F&B managers and operations managers know that getting the costings of recipes right and integrating the data into all kitchen operations takes up time and involves far too many spreadsheets. It’s not effective for scalable menu engineering.
Professional food costing software does the calculations for you, which makes food cost control easier.
View customer stories from Heavenly Desserts, Restaurant Company Europe, CitizenM and many more.
Take Control of Restaurant Food Costs with Apicbase
Controlling food costs should be a top priority for every restaurant. Learning how to calculate food cost is the first step. From there, you have to dig into all the factors that are inflating food costs and shrinking your margins.
Doing all food cost calculations manually is one way to go about it, but if you are looking for ways to make kitchen operations more effective and less time-consuming, a switch to professional restaurant software might be just what you need.
Take control of recipe costs and inventory and get Food Costing Software
Food costing software is the ultimate solution to ensure the profitability of your restaurants and give you control over CoGS and resources. Monitor the profit margins of menu items in real-time.
Geert Merckaert is the Content and Research Director at Apicbase and the producer of The Food Service Growth Show. He specialises in operational excellence, sustainability, and digital transformation in the restaurant and catering industry. Geert has a diverse background in content marketing, writing, and research, with previous roles in corporate finance at Bank van Breda, food marketing at VLAM, and the trade association Bakkers Vlaanderen. He holds degrees in Communications and Journalism from Plantijnhogeschool, as well as Art History from the Kunsthistorisch Instituut. During his studies, Geert spent nine years working weekends as a restaurant chef. He is dedicated to helping foodservice companies achieve sustainable growth through engaging and insightful content.
