Food cost: what it is, how to calculate it and what percentage is reasonable in a bar or restaurant

Food cost is the part of a dish's selling price, before VAT, that goes on ingredients. If a dish sells for €10 before VAT and the ingredients cost you €3, your food cost is 30%. It is the figure that tells you fastest whether a dish makes you money or loses it.

The formula

Food cost (%) = ingredient cost of the portion ÷ selling price before VAT × 100

To use it you need two figures: what it costs to make one portion (you get it from the costing sheet for the dish (escandallo)) and the price you sell it at, with the VAT taken off.

Example with numbers

Imagine a dish that costs you €3.50 in ingredients and that you put on the menu at €12.84. That price includes VAT. In hospitality, food served is taxed at 10% under article 91 of the Ley 37/1992, so first we take the VAT off: €12.84 ÷ 1.10 = €11.67.

Now we can do it properly: €3.50 ÷ €11.67 × 100 = 29.99%, that is, a food cost of almost 30%.

The most common mistake: calculating it with VAT

If you divide €3.50 by €12.84 (the price with VAT) you get 27.26%. It looks like things are going better, but the VAT is not yours: you hand it over to the tax authorities. That is why food cost is always calculated on the price before VAT.

From food cost to price: the formula in reverse

Often you do not have the price; what you want to know is how much to charge. If the cost is €3.50 and you want a food cost of 30%:

• Price before VAT = €3.50 ÷ 0.30 = €11.67
• Price with VAT = €11.67 × 1.10 = €12.84

The calculator here does both sums for you: you tell it the cost and the percentage you are aiming for, and it gives you the price before and after VAT.

What percentage is reasonable?

There is no universal percentage. As a starting point, and only as guideline ranges that each venue should adjust to its own numbers, these are the ones usually used:

• Cafés and breakfasts: between 20% and 30%. The products are cheap and the price barely moves.
• Tapas and sharing-plates bars: between 28% and 35%.
• À la carte restaurants: between 28% and 35%.
• Set lunch menu (menú del día): between 35% and 45%, because the fixed price leaves less margin per dish; it is made up for with high turnover.
• Dishes with expensive products, such as fresh fish or shellfish: can go above the range, and are balanced out with higher-margin dishes.

If your figure falls outside the range, it does not mean you are doing something wrong: there are venues with a high food cost that work because they have few staff or low rent. What matters is that you measure it and know why.

What to do if your food cost is too high

1. Review the dish's costing sheet. An ingredient may be missing or a price may be out of date.
2. Count the waste and trimming losses. If you buy 1 kilo of a product but less is left after peeling or cleaning it, the real cost of what you serve is higher.
3. Adjust the portion. Sometimes 20 grams less of an expensive ingredient changes the sum without the customer noticing.
4. Negotiate with your suppliers or switch supplier on the products that weigh the most.
5. Raise the price of that dish, or of all of them, a little.

What to do if your food cost is too low

A very low food cost can be good news, or a sign that you have made the portion too small or the price too high for what you offer. If customers complain or do not come back, you may be leaving sales on the table.

How to measure it every month

As well as the food cost of each dish, you can calculate it for the whole venue: add up what you have bought in the month, adjust for what was in storage at the start and at the end, and divide by what you have sold before VAT. If that result is far from what you expect from your costing sheets, there is waste, comps, portioning errors or product that gets lost.