Every dish you serve has an ingredient cost. If you don't know it exactly, you're pricing blind and giving away margin every time a customer orders that dish. Food cost is the number that tells you how much you pay for the ingredients in each portion as a percentage of the selling price.
What food cost is and why it matters
Food cost is the total cost of a dish's ingredients divided by the selling price, expressed as a percentage. If a burger costs you £2.40 in ingredients and you sell it for £8.40 ÷ 8.00 = 0.30).
The problem is that many small businesses set prices by copying competitors or adding "a bit more" to cost, without calculating whether that bit covers expenses.
The food cost formula step by step
The basic formula is:
Food Cost % = (Ingredient Cost ÷ Selling Price) × 100
Step one: list the ingredients for one dish with exact quantities. Step two: calculate the cost of each ingredient per portion (purchase price ÷ units the pack gives you, times the amount you use). Step three: add up all the ingredients; that's your total cost. Step four: divide the total cost by the selling price you plan to charge and multiply by one hundred.
30. For example, if the dish costs you £2.40, the selling price should be £2.40 ÷ 0.30 = £8.00.
Complete example with visible arithmetic
Imagine you sell cheesecake by the slice. The ingredients are:
| Ingredient | Quantity per slice | Purchase price | Cost per slice |
|---|---|---|---|
| Cream cheese | 60 g | £4.80 / 600 g | £0.48 |
| Sugar | 20 g | £1.00 / 1000 g | £0.02 |
| Biscuits | 30 g | £1.50 / 300 g | £0.15 |
| Butter | 15 g | £2.00 / 250 g | £0.12 |
| Eggs | 1 unit | £2.40 / 12 units | £0.20 |
| Cream | 30 ml | £1.80 / 600 ml | £0.09 |
| Total ingredient cost | £1.06 |
If you sell the slice at £4.00, your food cost is £1.06 ÷ £4.00 = 0.265, that is, 26.5 %. Your gross margin is £4.00 − £1.06 = (73.5 % of the selling price).
If you change the price to £3.50, food cost rises to 30.3 % (£1.06 ÷ £3.50) and your gross margin falls to £2.44.
Common mistakes that destroy margin
Not updating costs. The price of butter, eggs and flour changes every month. If you calculate your food cost once in January and never revisit it, by June you can be selling at a loss without realising.
Forgetting trim and waste. If you buy ten kilos of chicken and throw away half a kilo of trimmings, the real cost per kilo is higher. Include waste in the calculation or your food cost will be fiction.
Not counting "free" ingredients. Frying oil, salt, herbs and sauces count. Five pence here, ten there, and by the end of the month you've lost margin without understanding where.
Three practical ways to lower food cost without losing quality
Negotiate with suppliers or switch supplier. If you buy cream cheese every week, ask for a case price instead of single units.
Standardise portions. Use a scale or measure for every dish. If one cook puts 70 g of cream cheese instead of 60 g, the cost rises 17 % on that ingredient without the selling price changing.
Review the menu every quarter.Leave room for one or two "loss leader" dishes with low margin if they bring people in, but don't fill the menu with them.
Frequently asked questions
What's a good food cost?
It depends on your model.The important thing is to calculate all your fixed and variable expenses, subtract food cost, and see if there's margin left to pay bills and make profit.
Do I have to calculate food cost for every dish?
Yes. A roast chicken and a salad have completely different costs and margins. If you only look at the month's average, the profitable dishes hide the ones bleeding you dry.
How often should I review prices?
If you buy from a wholesale market and prices change every week, review at least your best-selling dishes monthly.
What to do this week
Pick the three dishes you sell most. List the ingredients with exact quantities, calculate the cost per portion using the prices from your last invoice, and apply the formula.
Write down the food cost of each dish in a simple spreadsheet (columns: dish, ingredient cost, selling price, food cost %, gross margin). Update it every month. That sheet is your map: it tells you which dishes feed you and which are robbing you.
If you want to compare your prices against real market data and fine-tune your margin, try the Pricora price analyser: you upload your menu and get a dish-by-dish breakdown.
Source of formula: standard restaurant costing method used in hospitality accounting; examples use illustrative figures in pounds sterling to make the arithmetic clear.