There are two ways to calculate raw-material consumption for a period.
The POS system, if you feed it recipes and ingredient costs, can report what was sold and the cost of the ingredients of those sales — cost of goods sold (COGS). That number is the theoretical food cost: the ingredient cost that should have been spent, based on the recipes and the sales.
That implies recipes were followed to the letter, there were no undeclared comps or spoilage, and ingredient prices are updated whenever they change. It assumes zero mistakes.
Mistakes do happen — and in a restaurant the nature of the work often does not allow perfect process compliance — so this is called theoretical, not actual.
The actual food cost is the amount that really was spent in practice, and you find it with a period stock count.
Key differences
Theoretical (Ideal / Theoretical Cost)
- Calculated from portions and recipes
- Based on total menu sales (sales mix)
- Assumes zero losses or mistakes
Actual Cost
- Calculated from real stock counts (inventory)
- Includes all purchases in the period
- Shows the truth of the till and of waste
The difference between theoretical and actual food cost is called variance. It is almost certain there will be some — as long as it stays in a healthy range of 1–2%. A larger variance needs investigation.
Causes of variance
- Waste and spoilage: throwing away too much, or poor prep
- Wrong portions: serving more or less than the recipe
- Theft or damage: uncontrolled access to the storeroom
- Free comps: food that leaves without going through the till
- Pricing errors: supplier price changes that were not updated
Actual food cost formula with a stock count
If you do a stock count every month, you know the ingredient cost at month end (closing stock). That is also the opening stock of the next month. During the month you make purchases that increase the value of stock.
Actual food cost = Opening stock + Purchases − Closing stock
Food Cost % = Food Cost / Food sales × 100
With a period stock count:
Food Cost % = (Opening Stock + Purchases − Closing Stock) / Food Sales × 100
- Opening stock: value of ingredients at the start of the period
- Purchases: ingredients bought during the period
- Closing stock: value of ingredients left at the end
- Food sales: food revenue in the same period
Example with a stock count
Say a burger bar has, for one week:
- Opening stock: €11,000
- Purchases: €7,000
- Closing stock: €15,000
- Food sales: €8,000
Calculation:
- 11,000 + 7,000 = €18,000
- 18,000 − 15,000 = €3,000 cost of ingredients used
- 3,000 / 8,000 × 100 = 37.5%
The important point: the stock count shows what was actually consumed, not only what was purchased. If you buy a lot of ingredients but they stay in the fridge, they are not yet food cost for the period.
For what is considered a good percentage, see Good Food Cost %: Benchmarks & Thinking. For the reasons it rises, see Why Food Cost % Goes Up — and How to Lower It.