If you own a restaurant, one of the most important numbers you need to know is your food cost. That's because food is one of your biggest expenses. If you don't know how much you're spending on it, you could be losing money without even realizing it.

Food cost helps you figure out how much it costs to make each dish you sell. Once you know that number, you can price your menu the right way and make sure you're making a profit. If your food cost is too high, you might be charging too little or wasting ingredients without noticing.

The good news is that calculating your food cost doesn't have to be complicated. You don't need to be a math expert or have fancy software. All you need is a few numbers from your inventory and sales. In this guide, we'll break it down step by step so you can start keeping track of your food costs easily.

Once you understand how it works, you'll have a better handle on your business - and more control over your profits.

Before you start calculating your food cost, it's important to understand the basic formula. Don't worry - it's simple once you break it down.

Here's the formula most restaurants use -

Food Cost = (Beginning Inventory + Purchases Ending Inventory) / Food Sales

Let's walk through what each part means -

-Beginning Inventory is the value of all the food you have at the start of a period (like the first day of the week or month).
-Purchases are the total amount you spent on food during that period.
-Ending Inventory is the value of the food you have left at the end of the period.
-Food Sales are the total dollars you made from selling food, not including drinks or merchandise.

This formula shows you how much of your food was used (what you started with plus what you bought, minus what you still have) and compares it to how much money you made from selling food. The result is your food cost percentage.

For example, if you spent $3,000 worth of food and made $10,000 in food sales, your food cost would be -

($3,000 $10,000) = 0.30 or 30%

A typical food cost for restaurants is somewhere between 28% and 35%, but this can vary depending on your type of menu and location.

Once you understand this formula, you can start using it to check your costs regularly and make smarter decisions about pricing, purchasing, and portion control.

The first step in calculating your food cost is recording your beginning inventory - this is the total value of all the food you have in stock at the start of your chosen period (usually weekly or monthly).

To get this number, you'll need to physically count everything in your kitchen, walk-in cooler, freezer, and dry storage. This includes meat, produce, dairy, dry goods, condiments, and anything else you use to prepare food.

Here's how to do it -

1. Make a list of all your food items. Group them by category (like meats, vegetables, spices, etc.) to stay organized.
2. Count the quantity of each item. Be accurate - count what you actually have on hand, not what should be there.
3. Write down the unit cost of each item. Use your most recent purchase price.
4. Multiply quantity by unit cost to get the total value for each item.
5. Add everything up to get your total beginning inventory value.

For example, if you have 10 pounds of chicken and each pound costs $3, the total value for chicken is $30. Do this for every food item and then add them all together.

It's best to do your inventory count on the same day and time each week - like Monday mornings - so you get consistent results. Always use the same method and units to make it easier to compare week to week.

Taking the time to do this right gives you a solid starting point for your food cost calculation. Skipping or guessing this step can throw off all your numbers later on.

Once you've recorded your beginning inventory, the next step is to track all your food purchases made during the period you're measuring. This means every time you order ingredients - whether it's from a major distributor, a local farm, or a cash-and-carry, you need to keep a record of what you bought and how much it cost.

Start by collecting all your food-related invoices and receipts. These documents are the key to knowing exactly how much you spent. Make sure you're only including food items here. Things like cleaning supplies, paper products, or alcohol should be tracked separately and not counted in your food cost calculation.

To keep things organized, create a simple spreadsheet or use software that helps with inventory and purchasing. You'll want to track the date of purchase, vendor name, product, quantity, unit price, and total cost.

Good vendor management can also help you save money in this step. Keeping a close eye on prices from your suppliers allows you to spot increases, negotiate better deals, or shop around for better options. Building good relationships with your vendors can also help you stay informed about product availability, seasonal pricing, and bulk discounts.

At the end of your tracking period, total up all your food purchases. This number, when added to your beginning inventory and later compared to your ending inventory, will help you figure out how much food was actually used.

Accurate purchase tracking not only helps with food cost calculation but also gives you better control over your restaurant's spending habits.

Now that you've tracked your beginning inventory and all your food purchases, it's time to take your ending inventory. This is the value of all the food you still have left at the end of your chosen period, like the end of the week or month.

Just like with the beginning inventory, this step requires a physical count of everything in your kitchen, fridge, freezer, and dry storage. You'll use the same method you used at the beginning of the period - counting each item, multiplying by its unit cost, and totaling everything up.

Here's a simple checklist to help you stay consistent -

-Use the same inventory sheet or format you used for the beginning inventory.
-Count at the same time and day of the week to avoid overlap or missing items.
-Make sure food is properly labeled and stored to make counting easier and more accurate.
-Use consistent units (e.g., pounds, ounces, or cases) throughout.

Taking your ending inventory seriously is important because it directly affects your food cost calculation. If you skip items or guess values, the final result will be off, and you won't have a true picture of your costs.

Pro tip - Keep your storage areas clean and organized. It not only helps during inventory counts but also reduces the chance of spoilage and waste. You'll also save time when staff aren't digging through clutter to find ingredients.

Once you've finished your ending inventory, you now have the three key numbers needed to calculate how much food was used. Next, we'll show you how to find your food sales and complete the formula.

With your beginning inventory, food purchases, and ending inventory recorded, the next step is to find out how much money your restaurant made from selling food. This is called your total food sales.

It's important to focus only on food sales - not your total sales. That means you'll need to separate food revenue from drinks, alcohol, merchandise, delivery fees, or other non-food items. Many restaurants make the mistake of using their total sales number, which leads to inaccurate food cost percentages.

To find your food sales -

1. Use your POS system (Point of Sale) to run a report for the same time period you've been tracking.
2. Filter for food items only. Most POS systems can break down sales by category.
3. Exclude any discounts or comps that may affect the total, or at least make a note of them to stay consistent.

If you don't have a POS system that breaks this down automatically, you may need to track food sales manually using your receipts or daily sales logs.

Accurate food sales reporting gives you a clear picture of how your costs compare to your income. It also helps you identify if your menu prices are working or need adjusting. For example, if your food cost percentage seems high, but your pricing hasn't changed while food prices have gone up, it might be time to review your menu.

Now that you have your total food sales, you're ready to plug all your numbers into the food cost formula in the next step.

Now that you've gathered all the key numbers - beginning inventory, food purchases, ending inventory, and food salesit's time to calculate your food cost using the formula we introduced earlier.

Here's the formula again

Food Cost = (Beginning Inventory + Purchases Ending Inventory) / Food Sales

Let's break it down with a simple example -

-Beginning Inventory. $4,000
-Purchases. $6,000
-Ending Inventory. $3,500
Food Sales. $12,000

Now plug the numbers in -

($4,000 + $6,000 $3,500) $12,000 = $6,500 / $12,000 = 0.541 or 54.1%

This means your food cost for that period is 54.1%, which is very high. Most restaurants aim for a food cost percentage between 28% and 35%. If your number is outside of that range, it's time to take a closer look at what's driving your costs up.

High food cost can be caused by -

-Incorrect portion sizes
-Too much food waste
-Rising ingredient prices
-Theft or unrecorded giveaways
-Poor inventory control

If your percentage is too low, double-check your numbers - you may have missed purchases or overestimated inventory. A low number can look good, but it's only helpful if it's accurate.

Doing this calculation regularly helps you stay on top of your costs, catch issues early, and keep your restaurant running efficiently. Once you know your food cost, you can make smart decisions about pricing, purchasing, and operations.

Now that you know how to calculate your food cost, the next step is putting that information to work. Understanding your food cost is only useful if you use it to improve how your restaurant runs - especially when it comes to pricing your menu and managing your profits.

Start by looking at how much each menu item costs to make. This is known as the plate cost or recipe cost. You'll want to break down every ingredient used in a dish and calculate its total cost. Once you know what it costs to make a meal, you can compare it to the price you're charging customers.

A general rule of thumb is to aim for a food cost percentage between 28% and 35% per dish. For example, if a burger costs you $3.50 to make and you want to keep your food cost at 30%, you should price it around $11.67 or higher.

But menu pricing isn't just about markup. Use your food cost insights to highlight your most profitable items and consider redesigning your menu layout to feature those dishes more prominently. You can also look for ways to lower your costs - like adjusting portion sizes, changing suppliers, or cutting ingredients that are too expensive.

Monitoring your food cost regularly helps you stay in control. You'll know when it's time to raise prices, swap ingredients, or rework recipes. Over time, these small adjustments can make a big difference in your bottom line.