Food cost percentage, calculated properly.
Food cost percentage is the number most owners quote and the one most often worked out wrong. Most owners work it out as purchases divided by sales. Food cost is what you used, not what you bought, and in a heavy buying month the quick version will mislead you.
Accountants, bookkeepers and tax agents for hospitality, plus tax returns for individuals and sole traders. Pink Accounting & Tax Solutions Pty Ltd, registered tax agent 26284368.
The calculation
Cost of goods used, not bought:
Opening stock + purchases − closing stock = cost of goods used.
Cost of goods used ÷ sales for the same period × 100 = food cost percentage.
Worked through: you start the month with $8,000 of stock, buy $34,000 and finish with $9,500. Cost of goods used is $32,500. On $90,000 of sales, that is 36.1%. If you had used purchases alone you would have read 37.8% and gone looking for a problem that was sitting in your coolroom.
Use figures excluding GST, and keep beverage separate from food if you want the number to be actionable. A venue with strong bar trade and weak kitchen margin looks fine on a blended number and is not fine.
Where it should sit
| Line | Where we want it | Where it starts costing you |
|---|---|---|
| Wage cost | at or under 30% of sales | 35% is where we start calling it a leak |
| Food and beverage cost | at or under 36% of sales | 40% and the menu needs work |
| Prime cost, wages plus stock | at or under 62% of sales | 68% and the venue is running for someone else |
| Rent | at or under 10% of sales | 15% and the site has to earn its keep |
The bands we work to on a standard single-site venue. Licensed venues, function work and heavy takeaway sit differently, which is part of the conversation.
These are the bands we work to on a standard single-site venue. A pizza shop and a fine dining room are different businesses, and a venue with heavy function trade is different again. The band matters less than the direction it is moving.
When it drifts, look here first
- Supplier price rises. They arrive without notice. Compare unit prices on your three biggest lines quarterly.
- Portion control. A protein portion 15% heavier than the recipe is a permanent margin cut.
- Waste and spoilage. If nobody records it, it is invisible, and invisible costs do not get fixed.
- Menu mix. Your margin can fall while every recipe stays the same, if customers move toward the dishes that cost you more.
- Theft and comps. Unmeasured staff meals and comped dishes are real food cost.
- Stale menu pricing. A menu costed two years ago is priced against two-year-old inputs.
Run the 60-second Margin Check on your own figures. It runs in your browser, and nothing is sent unless you choose to send it.
Hospitality Margin Protection is our core monthly plan. It carries the bookkeeping, payroll for up to five staff and BAS oversight underneath the monthly margin review.
Straight answers.
What if we do not count stock?
Then you have a purchases ratio, not a food cost. It is still worth watching for direction, but do not make pricing decisions on it.
How often should we recost the menu?
At least twice a year, and immediately after a significant supplier rise on a main protein or dairy line.
Should beverage be in the same number?
Keep them separate. Beverage typically runs at a very different cost percentage, and blending them hides whichever one is in trouble.
Stop finding out in July.
Fifteen minutes, direct with Pink. We look at your real numbers and tell you where the margin is going.