How to calculate your food cost percentage, and what to do with it

What your food cost percentage tells you

Your food cost percentage is the share of your net food revenue that goes on buying ingredients. If purchases come to €9,600 and you sell €30,000 of food, it is 32%. Of every euro, 32 cents goes to the wholesaler and the butcher. The other 68 cents has to cover your staff, your rent, your energy and whatever you keep.

A recipe card tells you what a plate should cost. Your food cost percentage tells you what it did cost, with the scrapings from returned plates, the spilt sauce and the extra spoonful when the kitchen is under pressure. That is why you use it to guard your profit, test your prices, spot waste, compare suppliers and budget your buying.

How to turn this number into a price is covered in the article on menu pricing. This one is about the measuring. How food cost ends up in your profit margin is a separate read.

Take the VAT out, on revenue and on purchases

The price on your menu includes VAT, and that part is not yours. In hospitality the Dutch tax authority, the Belastingdienst, applies 9% to food and non-alcoholic drinks and 21% to alcohol. Beer of 0.5% alcohol or less still falls under the low rate.

So divide your revenue by 1.09 for food and alcohol-free drinks and by 1.21 for alcohol. What is left is your net revenue. Take your purchases excluding VAT as well, because you claim back the VAT on supplier invoices in your return. Say your till shows this for one month:

Divide purchases of €9,600 by the €32,700 including VAT and you land on 29%. Divide by the €30,000 net and it is 32%. Three percentage points handed to yourself.

Take revenue from your till, by category and by VAT rate. If everything sits in one group, every number after this is a guess. Which other reports matter is covered in reading your numbers. Watch three things as you add up:

• Platform orders: use the amount the guest paid for the food, before the platform takes its commission. Commission is its own cost line, not food cost. How to book it is in [restaurant bookkeeping](post:bookkeeping).
• Discounts and free dishes: use what the guest actually paid. Delivery fees and gratuities are not food revenue.
• Food and drink: keep them apart. Drinks cost far less to buy and make your food look leaner than it is.

Your actual food cost: opening stock plus purchases minus closing stock

What you bought is not what you used: a walk-in fridge that is fuller than last month counts as purchases, not as consumption. That is why you count your stock. The short version of this sum also appears in where your money goes.

Why counting matters shows up over three months in a business where nothing changed:

Without a count you panic in month two and think you have fixed it in month three. The stock moved. The business did not. Here is how to count:

1. Count at a fixed moment, ideally after closing or the next morning before the delivery.
2. Walk through in a fixed order (freezer, fridge, dry store, bar) and count in pairs. Weigh expensive items such as meat and fish.
3. Value everything at the latest purchase price excluding VAT, and leave out salt and spices.
4. Book deliveries in the month the food arrived, not the month you pay.

Do not forget purchases without an invoice, such as the eggs from the supermarket. Packaging for takeaway and delivery stays out, since that is a cost of the channel. Count at least monthly, and expensive items like meat, fish and drinks weekly if you suspect a leak.

Per dish and for the whole business

Per dish, divide the cost of every ingredient in one portion by the menu price excluding VAT. Take a chicken schnitzel with chips and salad that sits on the menu at €16.35, so €15.00 net:

Mind the trim loss: you buy 200 grams of chicken and put 180 grams on the plate. Costing it at 180 grams would have put your chicken €0.19 too low. The percentage is €3.90 divided by €15.00, so 26%.

The percentage for the whole business is a weighted average: what sells often counts for more. One week, three dishes, invented numbers:

The average of the three percentages is 29%, but the business sits at 32% because the steak sells so often. Sell more soup and less steak next week and the percentage drops without a recipe or a price being touched. That is why you need sales figures per dish.

Theoretical against actual: where the gap sits

Add up the recipe costs for everything you sold and you get your theoretical food cost: sales counts from your till times recipe costs, divided by net revenue. It is what you would spend if every plate followed its recipe exactly. The period method gives the actual figure.

Say the theoretical food cost in our month is €8,400, which is 28% of €30,000, while the period method gave €9,600, or 32%. The gap is €1,200 a month, €14,400 a year of food you bought, paid for and never sold. It is the most useful number in this article, because it is not an opinion. The gap has five usual causes:

Chase the gap one ingredient at a time

Pick the most expensive ingredient in a dish that sells often and follow it for a week. You started with 4 kilos of steak, took a delivery of 20 kilos and finished with 3, so 21 kilos were used. Your till says you sold 100 steaks, at 180 grams each according to the recipe: 18 kilos in all. Three kilos are missing, which at €32 a kilo is €96 in one week. Now you have a question you can answer: is the portion averaging 210 grams, did trim go on the plate that the recipe ignores, did a plate end up in the bin?

A gap that stays the same size from month to month is your baseline, because every kitchen has trim loss. A gap that grows is a leak.

What you or your staff eat from your own kitchen sits in your purchases and not in your revenue, so it sits in your gap. How you treat that for VAT and income tax is something to settle with your accountant, because private use and staff meals have rules of their own.

Why the American band does not fit your business

Look up a good food cost percentage and nearly every result gives the same band: 28 to 35%. That is a rule of thumb from American industry sites, not Dutch research. As a starting point it tells you whether you are far off. As a target it does not fit, for three reasons:

1. Your other costs look different. Your wage bill follows the Dutch hospitality collective agreement (the cao Horeca) or your own contracts, your rent depends on your street, and commission and packaging vary by channel.
2. The VAT sits differently. American prices are usually quoted before tax, while here the VAT is inside the price.
3. Your type of business matters. A pizzeria works with flour, tomato and cheese and usually lands lower than a fish restaurant buying expensive raw material. That says nothing about who keeps more. Within one menu it varies too: drinks and sides usually come out lower than main courses.

Set your own target

Work from the bottom up. Start with what you want to keep, add your other costs and see what is left for purchases. Per €100 of net revenue, with round invented numbers:

In this example your target is 30%. If your actual food cost is 34%, you are giving up four euros per €100 of revenue. A business with lower staff costs can afford more food cost, and the other way round. That is why many owners look at both together, as in prime cost.

Bringing it down without making the plate worse

There is an order, from what your guest never notices to what they do. Usually the most money sits at the start of it, and your menu stays as it was.

Waste first

• Work first in, first out, and put a date sticker on anything you open or prepare.
• Prep for what you sell, not what you hope to sell: look at the same weekday over recent weeks.
• Keep a waste list for two weeks: what, how much and why. The pattern shows.
• Sell surplus before it reaches the bin, as a special, as soup or through an app for leftover meals.

‘Use by’ on a label is about food safety and is a hard limit for meat, fish and dairy. ‘Best before’ is about quality. If you doubt what is allowed, ask the NVWA, the Dutch food safety authority.

Then portions and purchasing

Measure what you serve, with scales for expensive items and a spoon of fixed size. Small overshoots add up: 30 grams of cheese too much on every pizza, at €9 a kilo, 25 pizzas an evening and 26 evenings a month, comes to more than €175 a month.

• Put a second quote beside your regular supplier’s every year, compare per kilo or per portion and not per pack, and negotiate with what you now know about your usage.
• Check every delivery against the delivery note and every invoice against the delivery. Prices drift, and you only see it if you look.

Last, the plate itself

Put dishes and sides with a low food cost up front, such as soup, chips and soft drinks. A different cheese, a smaller portion or a cheaper ingredient is something your guest tastes. Change one dish at a time and let your regulars try it before you roll it out.

What it brings in is arithmetic: going from 32% to 30% on €30,000 of net food revenue is €600 a month and €7,200 a year.

What the percentage does not tell you

A percentage is a ratio, not an amount. In our example the soup sits at 20% and the steak at 40%, so the steak looks like the worst dish. Yet the soup leaves €4.00 a portion and the steak €12.00. Swap steak for soup to improve your percentage and your business gets poorer. Read percentage and amount together, as in menu engineering.

• Your other costs: a food cost inside your target is no clean bill of health if wages or rent are climbing.
• What a dish earns elsewhere: a strong wine list can carry a plate that leaves little by itself.
• The channel: a dish has the same food cost in the dining room and through a delivery platform, but packaging, delivery and commission are not in this percentage.

What to do on Monday

You need no software to start. A till report, your purchase invoices and a count sheet are enough.

Put three numbers under each other every month in the same spreadsheet: actual, theoretical and the gap in euros. After a quarter you can see a line. The number is quick to work out. The work is in the count.