Food cost, inventory and monthly margins
Restaurant food cost is what you used, not what you bought: opening inventory, plus purchases, minus closing inventory, divided by net sales. A count on the same day each month makes that number reliable. Recipe costs show what each plate should cost, and menu prices are set from there.
How to calculate food cost properly
Purchases tell you what came in the back door. Food cost is what went out on plates, into the bin or to staff. The difference is what's still on the shelf, which is why the count matters.
Start with what you had at the beginning of the month, add everything you bought, and take off what's left at the end. That's your cost of goods sold. Divide it by net sales for food cost as a percentage.
Use purchases net of supplier credits and of GST you claim back as input tax credits, and sales after discounts, before GST and PST, without tips. Packaging and takeout containers can go in or out, as long as you stay consistent.
Worked example: one month
| Line | Amount |
|---|---|
| Opening inventory | $6,100 |
| Plus purchases, net of credits and GST you claim back | $16,688 |
| Less closing inventory | −$6,400 |
| Cost of goods sold | $16,388 |
| Net sales | $48,200 |
| Food and beverage cost | 34.0% |
A sample restaurant, illustrative only. Using purchases alone, food cost would show as 34.6%, because $300 more stock was on the shelf at month-end.
Why a count every month matters
Without a count, your food cost is really a purchases number. It moves with delivery days, not with what the kitchen used.
Delivery timing
A big order on the 30th makes this month look expensive and next month look cheap. A count evens that out.
Same day, same time
Count at the same point each month, before or after service, so every month covers the same stretch of trading.
High-value items first
If a full count takes too long, always count proteins, seafood, dairy and liquor. That's where most of the money sits.
Food, drink and liquor apart
Separate sheets and separate totals, so a rise in liquor cost doesn't hide inside a steady food number.
Waste, comps and staff meals
All three are food you used without a full sale. They land in cost of goods sold either way. Recording them tells you where the money went.
Waste
Spoilage, trim, dropped plates and over-prep. A simple waste log by shift, with the item and roughly what it cost, shows which ones repeat.
Comps and discounts
Rung through your point of sale with a reason, so sales are recorded after discounts and you can see what comps cost each month.
Staff meals
Recorded separately from guest sales, so they aren't mistaken for waste or heavy portions. How staff meals are treated for payroll is a separate question; we check yours.
What each plate should cost
A recipe cost tells you what a dish should cost to make. Compared with your actual food cost for the month, it shows how much is going to waste, comps or portions that have crept up.
List every ingredient
Including garnish, sauce, oil and the side, in the portion you actually serve.
Use the usable cost
If a $60 case gives 8 kg of usable product from 10 kg, it costs $7.50 a kilo, not $6.00.
Add it up per plate
The total is your plate cost. Divide it by the menu price before tax for the dish's food cost %.
Update when prices move
Re-cost your best sellers when a supplier changes prices, not once a year.
Sample plate: braised short rib
| Ingredient | Cost |
|---|---|
| Short rib, 220 g usable | $7.92 |
| Mashed potato, 180 g | $0.81 |
| Seasonal vegetables | $1.05 |
| Jus and garnish | $0.72 |
| Plate cost | $10.50 |
| Menu price, before tax | $32.00 |
| Food cost for this dish | 32.8% |
Illustrative figures, not a recommended price or target.
Pricing menu items from the plate up
A starting price is the plate cost divided by the food cost percentage you're aiming for. A $10.50 plate at a 33% target gives about $31.80, so $32 on the menu.
Then look at dollars, not only the percentage. A dish with a higher food cost % can still leave more money per plate, and the dollars per plate are what pay the rent and the staff.
Your own target for each dish comes from your rent, labour and the profit you want. Restaurant CFO works that out with you and tracks it monthly.
Pasta
- Menu price
- $22.00
- Plate cost
- $5.50
- Food cost
- 25.0%
- Left per plate
- $16.50
Short rib
- Menu price
- $32.00
- Plate cost
- $10.50
- Food cost
- 32.8%
- Left per plate
- $21.50
Illustrative figures. The short rib has the higher food cost %, but leaves $5.00 more per plate. Which dish to push depends on how many you sell and how long each one takes to make.
Books set up so your margins are right each month
Food cost is only as good as the books under it. We set up your accounts so cost of goods sold reflects what you used, then report it every month by location as part of the business full suite. A senior manager reviews the work.
Want it against your own target, with prime cost and a plan for what to change? That's Restaurant CFO.
How pricing works. Pricing is explained on the business membership page. We confirm your price before any work starts. See the business membership or see Fractional CFO pricing.
What we set up
- Separate cost accounts for food, non-alcoholic drinks, beer, wine and spirits
- Purchases recorded net of supplier credits and of GST you claim back
- Your month-end counts posted, so cost of goods sold is what you used
- Sales from your point-of-sale reports after discounts and comps, with tips and sales tax kept apart
- Food cost and liquor cost shown each month, for each location and for the business as a whole
- Packaging and takeout containers treated the same way every month
Food cost and inventory, answered
How do I calculate restaurant food cost?
Take your opening inventory, add the month's purchases, and subtract your closing inventory. That is your cost of goods sold. Divide it by net sales and multiply by 100 for food cost as a percentage. Use purchases net of supplier credits and of GST you claim back, and sales before GST and PST, without tips.
How often should a restaurant count inventory?
At least once a month, on the same day and at the same time, so each month's food cost covers the same stretch of trading. Many restaurants also count their high-value items weekly, so a problem shows up in the week it starts rather than at month-end.
What should I count?
Everything on hand that you bought to sell: food, non-alcoholic drinks, beer, wine and spirits. If a full count takes too long, count the high-value items every time, such as proteins, seafood, dairy and liquor, and keep food, drink and liquor on separate sheets.
Do waste, comps and staff meals count in food cost?
Yes. Food that is thrown out, given away or eaten by staff was still used, so it shows up in cost of goods sold either way. Recording each one separately tells you how much of your food cost went to guests who paid, and where the rest went.
How do I price a menu item from its food cost?
Cost the plate first: every ingredient at its usable cost, in the portion you serve. Divide the plate cost by the food cost percentage you are aiming for to get a starting price, then check it against what the dish leaves in dollars and what guests will pay.
Can you set up my books to show food cost each month?
Yes. We set up separate cost accounts for food, drinks and liquor, record purchases net of GST you claim back, post your month-end counts so cost of goods sold is what you used, and report food cost by location. It is part of the business full suite; prices are on the business membership page.
Sources, checked 27 Oct 2026. The food cost, inventory and recipe costing formulas on this page are standard management-accounting methods, not government rules. Official sources are listed only for the tax and payroll facts. Rules have exceptions and can change. This page is general information, not legal or tax advice for your situation.
- Excise Tax Act, s. 169 (laws-lois.justice.gc.ca): input tax credits for registrants on GST/HST paid on business purchases.
- Government of BC, Provincial sales tax (last updated 21 Sep 2026), gov.bc.ca: 7% general rate; the planned PST on accounting and other professional services is paused. Alberta has no PST.
- Government of BC, Food and beverage service providers and retail liquor sellers, gov.bc.ca: 10% PST on liquor.
Let's get your food cost right every month
Book a free 15-minute call by video or phone. Tell us how you count inventory today and how your books are kept, and we'll explain what we'd set up and what it would cost.
Which office?
Book a free 15-minute call15-minute calls every weekday at 10 am and 2 pm Pacific (11 am and 3 pm Mountain), except holidays.
Typical next slots, confirmed when you book:
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