How to Calculate Food Cost in 2025 (The Ultimate Guide with Examples)

Pricing your menu can feel like a tightrope walk; go too high, and your customers might balk; go too low, and your bottom line takes a hit. The secret? Knowing your food cost percentage.

This single metric can tell you how much you’re spending on ingredients versus how much you’re bringing in. It’s not just a number, it’s your guide to smarter pricing, healthier profits, and a successful restaurant.

In this post, we’ll explain exactly what food cost percentage is, why it matters, and how to calculate it step-by-step. Plus, we’ll share a free food cost calculator to make crunching the numbers a breeze. Ready to dig in?

• What Is Restaurant Food Cost?

• What Is Food Cost Percentage?

• Why Calculating Food Cost Percentage Is Important

• What Is Considered a Good Food Cost Percentage?

• How to Calculate Food Cost Percentage

• What Is an Ideal Food Cost Percentage?

• What Is Food Cost Per Serving?

• How to Calculate Ideal Menu Prices

• Potential Outcomes of Menu Price Changes

• How to Lower Food Cost

• How to Manage Food Waste

• Free Food Cost Calculator

• Frequently Asked Questions About Restaurant Food Cost

Before we get into the details, let’s tackle the basics; what exactly are food costs?

What is restaurant food cost?

Food cost is a key metric that tells you exactly how much you’re spending to create each dish, factoring in everything from the cost of ingredients to overheads like labor and utilities. By understanding your food cost, you gain insight into how profitable each menu item is and whether adjustments are needed.

This metric, often expressed as food cost percentage, compares your ingredient costs to the revenue generated when those dishes are sold. While some restaurants use food costs to price their dishes, others prefer to calculate the Cost of Goods Sold (COGS), which tracks every expense down to the smallest details like napkins and garnishes.

Setting yourself up for food costing success

As a restaurant operator, financial planning might not be what initially drew you to the industry, but it'll be what helps maintain business longevity. Budgeting in particular is essential for your restaurant's success. Many operators assume it's a one-and-done kind of task, that only needs to be performed at brand inception or as part of putting together a restaurant business plan - but that's far from the truth.

Monitoring your restaurant's financials regularly before you set out to calculate food cost percentage is essential. Using a standard restaurant POS system or table management software that integrates with a POS system, should be enough for most restaurants to set up a starting point.

If you're a little less tech-savvy and want to go about doing this manually - you're going to need to keep track of a few metrics on your own:

• Monitor all your figures meticulously. Understanding your prime cost, the relationship between your sales and expenses, is crucial.

• Establish your accounting timeframe. While the standard for many restaurants is a four-week period, choose a duration that aligns best with your business needs.

• Establish financial objectives. Budgets should not merely mirror your restaurant's financial status but should serve as navigational tools guiding your restaurant towards optimal efficiency.

• Prioritize a weekly operational budget. While overarching financial assessments are vital, a more detailed operational view is beneficial. This approach aids in easier expense tracking due to its smaller, more manageable scale.

Once you have the prior tips in mind, you can start your journey towards calculating your restaurant food cost.

What is food cost percentage? 

Food cost percentage represents what portion of your money you spend on buying food and beverage supplies at your restaurant. There are multiple methods to calculate your restaurant's food cost percentage.

• Food cost percentage per dish. This metric is an itemized breakdown of food cost percentage per individual dish. This helps when auditing your menu and deciding which dishes yield high profitability and which dishes could be improved/optimized.

• Total food cost percentage. This top-level metric helps set a benchmark for your restaurant. It looks at the cost of all your food supplies compared to your total food sales/revenue generated over a certain time.

Utilize food cost data to manage your overall food expenses effectively and identify opportunities for adjusting prices on certain dishes.

Why is food cost percentage important?

As a restaurant owner, profitability is probably your number one priority. We often gauge a restaurant's success by how profitable it is. Ultimately that is all that matters.

In the restaurant industry, your main method of increasing profits is through selling food. It only makes sense to understand the food cost of every dish on your menu to assess which dishes are profitable and which aren't.

Despite its importance, food costing is often not taken seriously by restaurant operators.

This could be because of the assumption that food costing is a difficult process, or because food cost isn't as tangible a cost to your business as rent and labor. Regardless, assigning value to food cost is one of the quickest methods to get to profitability.

Food costing isn't only limited to small restaurant chains. It is an industry-standard that even the biggest global restaurants put into practice.

Let's take Burger King as an example; Burger King sells around 16.7 million burgers per day. If Burger King doesn't optimize their food costs down to one cent, they are losing $167,000 per day, or $61 million a year.

Obviously, the same applies for smaller restaurants too. If you run a moderately successful independent restaurant that seats about 100 customers per day you are looking at losing $30,000-$50,000 per year when your food costs aren't optimized.

Benefits of knowing your food cost percentage

There are several reasons why you need to calculate food cost percentage at your restaurant, but it should only take a few to convince you to start.

• It allows you to know which menu items are profitable and which aren't, preventing you from missing out on any opportunities to make more money.
• When you know which items are more profitable, you can design your menu and pricing around your food cost (this is actually a strategy most restaurants use).
• Understand how each ingredient affects your profit margins. If there is a sudden spike in the cost of beef, you will be prepared to adjust prices accordingly to protect your profit.
• Most importantly, it allows you to set a standard food cost percentage across the board, and eliminate any menu item that costs too much (or find a way to bring the food cost down).

What is a good food cost percentage?

If you're looking to maintain profitability at your restaurant, you should aim to keep food costs between 28 and 35% of your total revenue. While this is a good benchmark to set for yourself, it's important to remember that there is no one-size-fits-all when it comes to food cost percentages, it can vary from one restaurant to another.

Let's take an example of a fast food chain and a high-end steakhouse. The fast food chain could get away with a 28% food cost percentage because its products are typically cheaper to buy in bulk, while the steakhouse might need to maintain somewhere closer to 35% because of higher cost of goods.

How to calculate food cost percentage

Before you begin calculating your food cost percentage, you'll need to have a few metrics at hand.

• Total food sales. The total value of your sales for the time range you are measuring.

• Beginning inventory value. The total value of your inventory at the start of the time range you are measuring.

• Purchases. The total value of all your purchases during the time range you are measuring.

• Ending inventory. The total value of your inventory at the end of the time range you are measuring.

The food cost percentage formula

To determine your food cost percentage, begin by combining the value of your initial food inventory, and purchases, then deduct the value of your ending inventory from this total. Then, divide this figure by your total food sales.

Example food cost percentage calculation

With the formula above, let's look at how "Pizza kitchen & cafe" would calculate their food cost percentage.

• Total food sales: $12,500

• Beginning inventory value: $13,250

• Purchases: $4,400

• Ending inventory value: $12,200

Food cost percentage = (13,250 + 4,400) – 12,200/ 12,500

Food cost percentage = 0.436 or 43.6%

This means that Pizza kitchen & cafe spends 43.6% of their revenue towards paying for ingredients. This number is well above the industry standard of 28-35%, which indicates that Pizza kitchen & cafe should definitely look at either their ingredients or menu pricing.

Just to be sure though, Pizza kitchen & cafe should calculate their ideal food cost percentage and compare it to their actual food cost percentage.

What is an ideal food cost percentage?

In many full-service and quick-service restaurants, the ideal food cost percentage ranges from 28 to 32 percent on average. Of course, there isn't a precise target food cost percentage; it varies depending on the food served and the restaurant's operating expenses.

You must calculate your ideal food cost percentage to determine what is best for your restaurant.

How to calculate ideal food cost percentage

Before you set out to calculate your ideal food cost percentage, you'll need to values:

• Total food cost

• Total food sales

Let's use the same value as the previous example for Pizza kitchen & cafe's total food sales, which would mean their total food sales were $12,500 and let's say their total food cost was $3,500. To calculate ideal food cost percentage, you'll need to divide total food costs by total food sales.

Total food cost percentage = 3,500/12,500 = 0.28 or 28%

Based on this formula, Pizza kitchen cafe's ideal food cost percentage is 28% and their current food cost percentage is 43.6% which means they are missing out on 15.6% more revenue.

What should Pizza kitchen & cafe do next?

With ideal food cost percentage at hand, Pizza kitchen and cafe now has a few options to try to lower their actual food cost percentage.

• Try to find cheaper suppliers for their ingredients and supplies

• Change their menu prices

• Alter the serving size of each dish

Let's take a look at how Pizza kitchen & cafe would go about changing their menu prices to increase revenue.

Before we do that though, we'll need to calculate something called "Food cost per serving".

What is food cost per serving?

Cost per serving is the total cost of an item divided by the number of servings it provides. This gives you a clear idea of what each serving costs. It’s especially helpful when you’re looking at bulk purchases, comparing different sizes, or planning your meal budget.

How do you calculate food cost per serving?

To calculate your food cost per serving, you'll need to first find the total cost of each individual ingredient that goes into making that serving.

Example of food cost per serving calculation

Going back to the example of Pizza kitchen & cafe, let's say they would like to determine the food cost per serving of their highly ordered vegetable pizza. The dish contains a variety of ingredients at varying prices per serving. They typically order their ingredients in bulk to save money, and so the numbers below are after Pizza kitchen & cafe has calculated each cost.

Pizza Dough

• Flour: 300 grams (estimated cost: $0.20)
• Yeast: 7 grams (estimated cost: $0.05)
• Water: 200 milliliters

Pizza Sauce

• Tomato Sauce: 200 grams (estimated cost: $0.25)
• Olive Oil: 15 milliliters (estimated cost: $0.10)
• Garlic: 2 cloves, minced (estimated cost: $0.05)
• Salt: 1 teaspoon
• Pepper: 1/2 teaspoon
• Italian Seasoning: 1 teaspoon

Vegetable Toppings

• Bell Peppers (Assorted Colors): 100 grams, sliced (estimated cost: $0.50)
• Red Onion: 50 grams, sliced (estimated cost: $0.15)
• Mushrooms: 75 grams, sliced (estimated cost: $0.30)
• Black Olives: 50 grams, sliced (estimated cost: $0.20)
• Spinach: 50 grams (estimated cost: $0.30)

Cheese

• Mozzarella Cheese: 150 grams, shredded (estimated cost: $0.75)

Estimated total cost for ingredients (excluding water): $3.10

This means that Pizza kitchen & cafe's food cost per serving of their famous vegetable pizza is $3.10.

How to calculate ideal menu prices?

Now that we know it costs Pizza kitchen & cafe $3.10 to make one vegetable pizza and their food cost percentage is 43.6%, that makes their current menu price $7.11. But what should they charge so that they can bring down their food cost percentage to the ideal amount of 28%.

That's where the ideal menu item price formula below comes into play.

This would mean Pizza kitchen & cafe's ideal price per vegetable pizza should be 3.10/0.28 = $11.07. Based off this calculation, Pizza kitchen & cafe could be charging an extra $3.96.

That doesn't seem like much extra at first glance, but when you take that over the entire year where they sell 50 of these pizzas per day, thats an extra $72,270! And thats just off one dish. If Pizza kitchen & cafe did the same calculation for each of their dishes, they could be making upwards of an extra million per year.

Potential outcomes of menu price changes

It should be habit at your restaurant to track menu prices and subsequent sales so that its easier to make any changes that arise when food cost fluctuates. In the example of Pizza kitchen & cafe above, there are two outcomes based on changing the price per pizza from $7 to $11:

• Pizzas continue to sell as previously or even increase

• Pizza sales drop

Let's take a look at each outcome.

Outcome 1: Pizza sales continue as usual

If the menu price change has had no effect on demand, this could indicate that Pizza kitchen & cafe's customer base could handle even higher prices. As a restaurant operator you just want to be careful to not exceed your competitors pricing. A good way to keep tabs on what your competitors are doing to avoid this happening is to perform a restaurant competitor SWOT analysis.

Outcome 2: Pizza sales decline

If the menu price change was followed by a decline in sales for a particular item, this might indicate that you've set it too high for your customers. The issue here is that reducing the price might dip back into your potential revenue - so you want to be careful and try to maybe reduce portion sizes or negotiate lower pricing with vendors.

How to lower food cost?

So now that you have a grasp on food costing and its importance, how do you optimize it?

We've listed a few simple strategies to help you lower your food cost and keep it there to prevent overspending where you don't have to.

• Increase the number of carbs on your menu. Carb-heavy dishes tend to be a lot cheaper than protein-based plates.

• Design your menu to highlight the most profitable menu items.

• Play around with portion sizes until you get the food cost percentage you are looking for.

• Increase menu prices slightly to compensate for higher food cost dishes.

How to manage food waste and save on costs

Managing food waste is a win-win for your wallet and the planet. By being more mindful of how you handle food, you can reduce waste and boost profitability.

Here are some simple yet effective ways to manage food waste in your restaurant:

• Compost: Turn your food scraps into nutrient-rich compost. It’s a great way to minimize landfill waste and even benefit your restaurant’s garden or local community.
• Donate: If you have excess food that’s still safe to eat, consider donating it to a local food bank or charity. It’s a good deed and can be a great way to build positive community relationships.
• Eat Your Leftovers: Instead of throwing away leftovers, turn them into meals for your staff or use them creatively in other dishes. It reduces waste while feeding your team.
• Store Food Properly: Proper storage can significantly extend the shelf life of your ingredients. Invest in quality storage systems and label your products with clear expiry dates.
• Understand the Impact of Food Waste: Food waste is not only costly but also has a significant environmental impact. By reducing waste, you’re doing your part to conserve resources and reduce your carbon footprint.
• Offer Staff Meals: Feed your team with leftover or excess food. This helps reduce waste while keeping your staff happy and well-fed.
• Take an Inventory: Regularly taking inventory helps you keep track of what you have and what’s about to expire, so you can use it before it spoils.
• Implement Food Recovery Programs: Set up systems to collect and redistribute excess food. This not only helps minimize waste but can also support your local community.
• Use Sustainable Packaging: Switch to eco-friendly packaging options to reduce waste. Recyclable or compostable packaging ensures you’re not contributing to landfill problems.
• Learn How to Read Expiration Dates: Not all food items need to be thrown out the moment they reach their expiration date. Learn the difference between “use by,” “sell by,” and “best before” dates to avoid unnecessary waste.
• Organize Your Fridge: Keep your fridge tidy by using a first-in, first-out (FIFO) system. This helps ensure older stock gets used first and reduces the risk of spoilage.
• Respect Food: Don’t underestimate the value of food. Treating ingredients with respect by using them efficiently and avoiding waste can go a long way in your sustainability efforts.
• Sustainable Management of Food: Plan your menu and purchasing around the concept of sustainability, focusing on seasonal and local ingredients that help reduce your carbon footprint.
• Temperature Control: Ensure that your food is stored at the correct temperature to avoid spoilage. A good temperature control system prevents food from being wasted due to improper handling.
• Use Less Water: Excessive water use in food preparation can lead to unnecessary waste. Find ways to conserve water, like using water-efficient dishwashing methods or cooking with less water when possible.

Download the free food cost calculator

To make things easier for you, we have put together a free food cost calculator excel sheet that can streamline the entire process.

The Excel sheet not only allows you to calculate the food cost per item, but to also add important details such as pictures, notes, and allergy information about each dish.

Save yourself countless hours and download our easy-to-use food cost calculator now.

Frequently Asked Questions about Restaurant food cost

How do you calculate food costs?

To calculate food cost percentage, add your initial inventory to the sum of all your purchases and then subtract the final inventory value from the total. Finally, divide the result by total food sales.

What is food cost percentage?

Food cost ratio is the ratio of the amount of money a restaurant spends on food and beverage ingredients (food inventory) to the revenue generated when these ingredients are sold as menu items (food sales). It is expressed as a percentage of total revenue from food sales. 

What is actual food cost?

Actual food cost is the cost of all food actually consumed in the restaurant during the same period. Actual food costs account for situations such as incomplete portions, accidental waste, improper billing, or employee theft. 

What is a good food cost ratio?

In many full-service and quick-service restaurants, the ideal food cost percentage ranges from 28 to 35 percent on average.

How do I figure out how much to charge for food?

To figure out how much to charge for food at your restaurant, you need to use the "Ideal menu item price" formula - which divides the cost per serving by your ideal food cost percentage. This gives you a great starting point when menu pricing - provided you continue to monitor sales after any price change to ensure you haven't eaten into your own sales.