Food Cost Percentage
Food cost percentage is the portion of a dish's menu price that goes toward paying for ingredients. You calculate it by dividing the cost of ingredients by the selling price and multiplying by 100. If a dish costs $5 in ingredients and you sell it for $18, your food cost percentage is about 28%.
Why it matters for your restaurant
This single number tells you whether a dish is pulling its weight financially. Most full-service restaurants aim for an overall food cost percentage between 28% and 35%, though this varies by concept. A fast-casual spot might target 25%, while a steakhouse working with premium cuts might run closer to 38% and make up for it with volume and beverage sales.
Tracking food cost percentage on a per-item basis helps you spot trouble before it eats into your profits. If your chicken parmesan has crept from 30% to 38% because poultry prices went up, you know it is time to either adjust the recipe, raise the price, or find a different supplier. Without this metric, you might not notice the margin erosion until your monthly P&L tells the story too late.
How it works in practice
Take a pasta dish as an example. You use $3.50 in pasta, sauce, cheese, and garnish, and you sell the plate for $16. Your food cost percentage is $3.50 divided by $16, which equals 21.9%. That is a strong margin. Now look at your ribeye steak: $14 in ingredients sold for $42 gives you 33.3%. Still within range, but much tighter.
When you run these calculations across your entire menu, patterns emerge. You might discover that your appetizers average 22% food cost while your entrees average 34%. That insight can shape how you design your menu, perhaps encouraging appetizer sharing or adjusting entree pricing.
It is important to recalculate food cost percentages regularly, at least quarterly, because ingredient prices shift with seasons, supply chain disruptions, and vendor changes. What was a 30% dish six months ago could be a 37% dish today.
Connecting the dots
Food cost percentage is the foundation of menu pricing and one of the first numbers any restaurant owner should master. It connects directly to your contribution margin, your overall profitability, and your ability to make smart decisions about what stays on the menu and what needs to change.