Food cost percentage is calculated by dividing your cost of goods sold by your food sales and multiplying by 100. The formula is (Cost of Goods Sold ÷ Food Sales) × 100 = Food Cost Percentage.

The part that trips people up is getting an accurate cost of goods sold figure. COGS isn’t just what you purchased this period. You need to account for inventory changes. The formula is Beginning Inventory + Purchases - Ending Inventory = COGS.

Here’s a practical example. Say you’re calculating for February. On February 1, you count inventory and it’s worth $8,000. During February, you purchase $22,000 in food from your vendors. On February 28, you count again and have $6,000 left. Your COGS is $8,000 + $22,000 - $6,000 = $24,000. If your food sales for February were $80,000, your food cost percentage is ($24,000 ÷ $80,000) × 100 = 30%.

That 30% means thirty cents of every food dollar went to ingredients. The remaining seventy cents covers labor, rent, utilities, and hopefully some profit at the end.

Target food cost varies by restaurant type. Quick service typically runs 25-30%. Full service casual dining aims for 28-35%. Fine dining might accept 35-40% because of higher ingredient quality and pricing power. If you’re consistently above your target, the issue is usually paying too much for product, portioning too generously, experiencing waste or theft, or not pricing menu items high enough.

Physical inventory counts are essential. You cannot calculate food cost accurately without them. Restaurant accounting requires regular counts because you’re working with perishable goods that move quickly. Weekly counts give you the clearest picture. Monthly is the minimum for meaningful tracking. Estimating inventory doesn’t work because you’re guessing at half the equation.

Separate food from beverage in your calculations. Drinks usually have lower cost percentages, especially alcohol. Combining them masks problems in either category. If your blended cost looks acceptable but food is running high while beverages run low, you’re missing the chance to fix what’s actually broken.

Theoretical food cost versus actual food cost matters too. Theoretical is what your cost should be based on recipes and portion sizes. Actual is what you really spent. The gap between them reveals operational issues like waste, over-portioning, theft, spoilage, or vendor price increases you haven’t adjusted for on your menu.

Track it consistently. Comparing February to January only works if you counted inventory and recorded purchases the same way both months. This is where small business bookkeeping makes a difference. Your purchases need to be recorded accurately and categorized correctly so the numbers you’re using actually reflect reality. Inconsistent methods give you data you can’t trust, and decisions based on bad data make things worse.