How to calculate restaurant food cost percentage
The formula, a worked example, and the common mistakes that make food cost look better or worse than it really is.
By Abhishek Mundada, CA, CFA. Published . 6 min read.
Food cost percentage is the share of food sales spent on the ingredients used to produce them. It is the single most watched number in a restaurant, and also one of the most frequently miscalculated.
The formula
Food cost % = (Opening stock + Purchases − Closing stock) ÷ Food sales × 100
Use food purchases and food sales only. Beverages are calculated separately.
The part in brackets is your cost of food consumed. It tells you what was actually used during the period, not simply what was bought.
A worked example
Illustrative figures for one outlet for one month:
| Item | Amount (₹) |
|---|---|
| Opening food stock | 1,80,000 |
| Add: food purchases | 9,40,000 |
| Less: closing food stock | (2,05,000) |
| Cost of food consumed | 9,15,000 |
| Food sales (net of discounts, excluding GST) | 28,50,000 |
| Food cost % | 32.1% |
Mistakes that distort the number
- Using purchases instead of consumption. If you bought heavily at month end, purchases overstate cost; if you ran stock down, they understate it.
- Skipping the stock count. Without a closing stock value, food cost cannot be calculated accurately at all.
- Using gross sales including GST, or before discounts. Use net food sales so the denominator reflects what you actually earned.
- Mixing food and beverages. Beverage cost behaves very differently and should be tracked on its own.
- Ignoring staff meals, wastage and complimentary items. These are real costs. Track them so you can explain the gap between theoretical and actual cost.
Actual versus theoretical food cost
Theoretical food cost is what your recipes say each dish should cost, multiplied by what you sold. Actual food cost is what the stock movement says you used. The gap between the two is where wastage, over-portioning, pilferage and recording errors show up.
You need standard recipes with costed ingredients and a sales mix report from your POS to calculate theoretical cost. It is more work, but it turns food cost from a single number into something you can act on.
What is a good food cost percentage?
There is no universal right answer. It depends on cuisine, menu pricing, format and positioning. A more useful benchmark is your own target, set from your costed menu, and the trend month to month. A rise of one or two percentage points, sustained, deserves investigation.
If you want food cost reported monthly alongside the rest of your restaurant P&L, our Restaurant MIS package includes it, provided stock counts are available.
Need help applying this to your business?
We set up monthly reporting and planning that puts these ideas into practice.
This article is general information and not professional advice for any specific situation. See our disclaimer.