Food cost percentage tells you how much of every dollar of sales went to the food and drink you used to make it. It's the number most owners say they watch and the one most often guessed, because working it out properly needs a stock count at both ends of the period and every invoice in between.
This guide covers the formula, how to work out actual and theoretical food cost, what the gap between them means, and where to look when the number is too high.
The formula
Food cost % = cost of goods used ÷ food and beverage sales × 100
Cost of goods used is what you actually used up during the period, not what you bought:
Cost of goods used = opening stock + purchases − closing stock
Sales is food and beverage net sales for the same period: after discounts, comps and refunds, before tax and tips.
Example: a café starts the month with $3,100 of stock, buys $11,800 from suppliers during the month and counts $2,900 at the end.
- Cost of goods used: 3,100 + 11,800 − 2,900 = $12,000
- Net sales for the month: $40,000
- Food cost %: 12,000 ÷ 40,000 = 30%
Why purchases alone give the wrong number
Dividing the month's invoices by the month's sales is the common shortcut, and it moves around for reasons that have nothing to do with how well the kitchen runs. Buy a big order of cups and coffee on the 30th and that month looks expensive and the next one looks cheap.
The counts at both ends fix that. If counting everything every week is too much, count the 20 or so items that make up most of your cost every week, and the rest once a month.
Actual and theoretical food cost
Actual food cost is the number above: what you really used.
Theoretical food cost is what you should have used, given what you sold. You work it out from your recipes:
Theoretical food cost = sum of (items sold × plate cost of each item)
Example: in the same month the café sold 4,000 lattes at a plate cost of $0.95 and 1,200 breakfast sandwiches at $1.90, plus everything else on the menu. Adding every item up comes to $11,000, or 27.5% of sales.
The gap is the useful part
The café's actual food cost was $12,000 and its theoretical food cost was $11,000. The $1,000 difference, 2.5 points of food cost, is food that was bought and used up but never sold. It usually comes from a short list of causes:
- Waste: spoilage, dropped plates, over-prep at close
- Portions: a heavier hand than the recipe on cheese, milk or protein
- Comps and staff meals that never went through the POS
- Recipes that are out of date: the menu changed and the recipe card didn't
- Prices that moved: the plate cost uses last year's supplier price
- Theft, which is rarer than the other five but does happen
A gap of a point or two is normal. A gap that grows month over month means one of those causes is getting worse, and the waste log and the item-level numbers tell you which.
Five ways to bring food cost down
- Keep plate costs current. Update ingredient prices from recent invoices, not from when the menu was written. A 15% rise in oat milk changes the cost of every oat latte.
- Log waste where it happens. Use a phone at the station, with a reason for each entry. After two weeks you'll know whether the problem is spoilage, over-prep or mistakes.
- Prep to the forecast. Prep what you expect to sell on that day of the week, not a fixed par. Over-prep on a quiet Tuesday is waste by Wednesday.
- Order to par levels. Order back up to a set level for each item instead of ordering by eye, so stock doesn't sit and spoil.
- Price with the margin in view. Look at each item's popularity and margin together. A popular item with a thin margin is often fixed by a small price change or a cheaper garnish, not a menu overhaul.
How often to check it
- Weekly, for the 20 items that make up most of your cost, so a problem shows up in days instead of at month end
- Monthly, with a full count, for the number you report and compare over time
- Prime cost (food cost plus labor) is the number to watch alongside it, because a cut in one can push up the other
How Ospelia does it
Recipes & plate cost works out each item's cost from your ingredient prices, and the prices update from the supplier invoices you record. Inventory holds your counts and par levels, and stock counts can be done on a phone.
The P&L & prime cost page shows food cost next to labor and sales. Until there are two finished stock counts, it uses a food cost percentage you type in and labels it as an estimate. Once there are, it works food cost out from your counts and invoices.
The Waste log records each spill, spoilage and comp with a reason and takes the quantity off inventory, so you can see what waste is really costing you.
