Food cost is one of the most useful numbers for a restaurant, café, or catering business. Not because it is an “accounting term”, but because it answers a very practical question:
Of the money I make when I sell a dish, how much goes into the ingredients I use in my recipe?
If you do not know that number, your selling price is a bit like cooking without salt: it might work, but mostly by luck.
In this guide we will cover what food cost is, how to calculate it, what percentage is usually considered good, and how you can lower it without hurting the quality of your menu.
What is food cost?
Food cost is the cost of food and drinks, as well as consumables (e.g. takeaway packaging), that a business uses to cook its dishes.
In practice we look at it in two ways:
- Food cost per dish / portion: how much the ingredients cost for one specific recipe portion.
- Period food cost: how much the ingredients consumed in a period cost, e.g. one month.
Per-dish food cost helps you set the right selling price. Period food cost explains total consumption of raw materials (and consumables). Both can be measured either in euros or as a percentage of sales (or of the selling price).
Food cost vs food cost percentage
These two terms are often confused:
- Food cost: the amount in euros you spend on ingredients — either for a period or for a recipe.
- Food cost percentage %: food cost as a percentage of sales or of the selling price at recipe level.
Example:
- Ingredient cost for a burger: €2.80
- Selling price: €9.00 (excluding VAT)
Food Cost % = Ingredient cost (food cost) / Selling price (excl. VAT) × 100
That is, 2.80 / 9.00 × 100 = 31.1%
So, from every €9.00 burger, about €2.80 goes to ingredients. The remaining €6.20 is not net profit, but gross margin — it contributes to covering other costs such as labour, rent, utilities, equipment, marketing, and everything else.
This is one of the most common mistakes: we look at the difference between selling price and ingredient cost and assume all of it stays in our pocket. It does not.
We use the same calculation for the food cost percentage of a period:
Food cost % = cost of ingredients consumed in the period / sales of the same period (excl. VAT) × 100
Example:
- Monthly ingredient consumption = €12,000
- Monthly sales = €38,200
- Monthly Food Cost % = 12,000 / 38,200 × 100 = 31.41%
Is that a good result? See the way of thinking in the article Good Food Cost %: Benchmarks & Thinking.
How do we calculate monthly consumption? There are two ways — read Theoretical vs Actual Food Cost.
How to set a selling price from a target food cost
If you know the portion cost and have a target food cost, you can find an indicative selling price:
Selling price = Portion cost / Target food cost %
Example:
- Portion cost: €3.20
- Target food cost: 32%
- Selling price = 3.20 / 0.32 = €10.00
That does not mean you must charge €10.00. Look at the market, the competition, perceived value, service style, and overall margin. The formula gives you a starting price — it does not replace business judgment.
A key next step is Menu Engineering: Stars, Plowhorses, Puzzles, Dogs: how each menu item performs.