Restaurant food cost percentage: how to work it out, and what to do about it
Food cost percentage is the share of your food sales that goes on ingredients. It is the number that tells a restaurant whether the menu makes money, and it is easy to get wrong if you measure it against prices that include Value-Added Tax (VAT).
In short
- Work food cost out on sales before VAT. If you use menu prices that include VAT, the percentage looks 15% better than it is.
- A dish that costs R38 to make and sells for R145 including VAT has a food cost of 30.1%, not 26.2%.
- Actual food cost (from stock counts) should be compared with theoretical food cost (from recipes). The gap is where waste, portioning and theft hide.
- Cost every dish. Your overall percentage can look fine while one popular dish loses money.
The formula, and the VAT trap
Food cost percentage = cost of food used ÷ food sales before VAT.
The VAT trap is real. VAT is 15%, and it is money you owe the South African Revenue Service, not income. If a dish sells for R145 on the menu, R126.09 is your sales and R18.91 is VAT. A dish with R38 of ingredients therefore has a food cost of 38 ÷ 126.09, which is 30.1%. Measure it against R145 and it looks like 26.2%, which is wrong by almost four points.
Cost each dish
Work out the cost of a portion from a recipe: every ingredient, at today's price, in the amount served, plus the trim and waste from preparing it.
| Dish | Ingredient cost | Menu price (incl. VAT) | Price before VAT | Food cost % | Gross profit per plate |
|---|---|---|---|---|---|
| Burger | R32.00 | R119 | R103.48 | 30.9% | R71.48 |
| Pasta | R22.00 | R98 | R85.22 | 25.8% | R63.22 |
| Steak | R85.00 | R249 | R216.52 | 39.3% | R131.52 |
The steak has the highest food cost percentage and the highest profit per plate. Percentages tell you about the mix of your menu, and rand profit tells you where you earn. You need both.
Price to a target
To hit a target food cost, divide the ingredient cost by the target percentage to get the price before VAT, then add 15%. For a R38 dish and a 30% target:
R38 ÷ 0.30 = R126.67 before VAT, or R145.67 with VAT. Most owners round to a menu price such as R145 or R149.
Actual against theoretical
The dish costs above are theoretical: what the food cost should be if every plate is made to recipe. Actual food cost comes from your stock count.
Actual food usage = opening stock + purchases - closing stock.
| Month | Amount |
|---|---|
| Opening stock | R42,000 |
| Purchases | R150,000 |
| Closing stock | R36,000 |
| Food used | R156,000 |
| Food sales before VAT | R500,000 |
| Actual food cost | 31.2% |
| Theoretical food cost (from recipes) | 30.0% |
The gap is 1.2 points, which is R6,000 of food that cannot be explained by what was sold. Causes include over-portioning, waste, spoilage, wrong deliveries and theft. Count stock weekly and watch the gap.
Where the margin leaks
- Portions that creep up over the course of a busy service.
- Waste from over-prepping, spoilage and returns.
- Supplier price rises that never reach the menu.
- Discounts and comps that are not recorded.
- Delivery apps. The commission is a cost of that sale, so a dish that works in the dining room may not work on an app. Work out the margin after commission.
What to do now
- Cost your ten best-selling dishes with a recipe card each.
- Recalculate the food cost percentage before VAT and compare it with your target.
- Count stock weekly and work out actual against theoretical.
- Raise prices or change portions on dishes that miss the target and cannot be fixed by recipe.
- Review supplier prices monthly and update your costs.
Frequently asked questions
What is a good food cost percentage?
It depends on the concept, so use your own target and track it over time. Many operators aim for the high 20s to the low 30s for food, but a fine-dining or high-volume concept will differ.
Should I include beverages?
Measure food and beverages separately, because their margins differ.
How does turnover tax or VAT change this?
Not the formula, but VAT registration decides whether the 15% comes off your sales before you work out the percentage. If you are not registered for VAT, you have no VAT to remove.
Sources and further reading
- Value-Added Tax, South African Revenue Service
This article is general information for South African businesses. It is not tax, legal or financial advice, and it reflects the rules and figures at the date shown above. Tax rules change, so confirm the current position before you act. TBL's practitioners are registered tax practitioners.