In the restaurant industry, cost management is the key to your business’ success. Whether you run a compact café or a large family restaurant, the way you handle expenses shapes your restaurant’s profitability and long-term prospects.

If you’re looking for ways to cut costs, food is a natural place to start. That’s where the ideal food cost percentage comes in — this handy metric helps you measure your restaurant’s performance and identify cost-cutting measures that’ll maximize profits.

Exploring restaurant food costs: The heart of your expenses

Before you can save money on your restaurant’s food costs, it’s important to know exactly what you’re spending. While labor and overhead contribute to the bottom line, food costs — how much you spend on ingredients — are typically the largest expense.

Related: How much does it cost to open a restaurant? 

One of the most effective ways to understand your restaurant’s food expenses is to calculate and monitor your food cost percentage — the ratio of how much your ingredients cost to the revenue they generate. This metric lets you know how much you’re spending on food for every dollar you make. If your food cost percentage is 45%, for example, it means $0.45 of every $1.00 in sales goes toward ingredients. You can calculate this percentage for individual dishes or the menu as a whole.

Your food expenses directly influence your restaurant’s profitability and financial health. If they’re too high, they tend to eat into your profits and impact your ability to meet the goals in your restaurant business plan. Calculating an ideal food cost percentage creates a useful benchmark you can use to monitor business finances on an ongoing basis. It helps ensure you’re controlling costs, setting appropriate menu prices, and making smart business decisions that help you build a sustainable operation.

Calculating food cost percentage and boosting restaurant profitability

The first step in managing food expenses is to calculate your food cost percentage. Here’s the basic formula:

Food Cost Percentage = (Total cost of Food / Total Revenue) x 100

Say you want to calculate your restaurant’s overall food cost percentage for the previous month. Here’s the basic process:

• Determine your total cost of food. The food cost formula is simple. Take the value of your food inventory at the beginning of the month and add any food purchases you made during the month. From that number, subtract the value of your inventory at the end of the month to get the total cost of food. This number is also called the cost of goods sold (COGS).
• Calculate food sales. Run a report on your POS system to determine the total revenue you brought in from food sales. Exclude revenue from non-food items, such as gift card purchases or branded merchandise.
• Calculate food cost percentage. Divide your food cost by your revenue and multiply that number by 100 to get the percentage.

Imagine your restaurant starts the month with $15,000 in inventory and receives a $4,000 order 2 weeks in. At the end of the month, you have $8,000 in inventory left. During that time, you bring in $35,000 in food sales.

Here’s what the food cost formula would look like in this scenario:

($15,000 beginning inventory + $4,000 purchase) – $8,000 ending inventory = $11,000 in food costs

To calculate food cost percentage, you’d use this formula:

($11,000 food costs / $35,000 in revenue) x 100 = 31.43%

What’s the ideal food cost percentage for your restaurant? It’s different for every business but usually falls between 25% and 35%. Your ideal food cost percentage may be higher or lower based on your location, the type and style of food you serve, and your target audience.

If your restaurant’s numbers are much higher than the ideal food cost percentage, it’s a sign you need to make changes. You might need to cut food costs, increase menu prices, or adjust portion sizes. Keep in mind that high levels of food waste can also impact your results; implementing best practices for restaurant inventory management can help prevent spoilage.

As you find ways to reduce costs, you can also calculate food cost percentage for each menu item. To do so, use this equation:

(Cost of ingredients used to make a menu item / Menu price) x 100 = Menu item food cost percentage

Let’s say it takes $4 in ingredients to make a plate of pasta and you sell the dish for $10. That means 40% of that item’s revenue goes to food costs, which is higher than the ideal food cost percentage for most restaurants. If you’re struggling with the food cost formula or the actual food cost for each item, it might help to use the food cost calculator in your POS system.

One way to improve your numbers is to increase the selling price. If you sell the pasta for $14, you end up with a food cost percentage of 28.57%. Alternatively, you could switch to a cheaper supplier to reduce the food costs.

3 simple ways to cut costs in the kitchen

Whether you’re trying to reduce expenses across the board or move closer to your restaurant’s ideal food cost percentage, cutting costs is a great place to start. Small reductions can add up to significant savings. As you make changes, use an effective restaurant budget template to track the results.

1. Buy local foods

When you purchase food from local suppliers, it doesn’t have to travel far to reach your restaurants. You’ll save money on fuel surcharges and infuse cash into the local economy. Shorter shipping distances also mean you can buy food at its peak ripeness, when flavor and quality are the highest.

Buying from suppliers in your region may also boost sales. According to the National Restaurant Association’s 2024 State of the Restaurant Industry report, 38% of diners said they’re more likely to choose a restaurant that offers locally sourced foods over one that doesn’t. Start building relationships with local suppliers today; ordering consistently can help you negotiate better deals later on.

2. Examine portion sizes

If your customers frequently leave food on their plates, it might mean it’s time to reduce your portion sizes. A slightly smaller serving can match guests’ appetites, all while reducing the portion cost and getting you closer to an ideal food cost percentage. Plus, you’ll be able to keep a lower inventory on hand, which helps reduce the risk of food waste.

The trick? Focus on quality — when the flavors and textures are top-notch, diners will walk away feeling happy and satisfied. Ask your chefs to experiment with new spice blends and creative cooking techniques to take your foods to the next level.

3. Cross-train employees

Reaching your ideal food cost percentage isn’t the only way to cut costs; labor matters, too. To make sure that your employees are working efficiently at all times, consider investing in cross-training. If your pastry chef has an inconsistent workload, for example, you might train them to help the prep cooks when they have downtime. That way, you can achieve more with the same amount of payroll hours.

Cross-training can also build a greater sense of understanding and cooperation in the kitchen, which improves the work environment and helps the business run like a well-oiled machine. And when new employees come in, the entire team will be able to answer questions and offer suggestions.

Leveraging food cost percentage and support from Grubhub

Managing costs is critical in a successful restaurant business. By monitoring your ideal food cost percentage and finding ways to reduce expenses, you can establish the foundation for long-term sustainability.

Boosting sales is another way to improve your restaurant’s financial health. The Grubhub platform offers multiple ways to reach new customers and increase order volume, as well as:

• Delivery data
• Promotional tools
• Seamless tech and POS integrations

As a restaurant partner, you’ll also get access to comprehensive support. Our dedicated Account Advisors and care agents provide personalized guidance and assistance to help you navigate the Grubhub platform and maximize profitability. Signing up is a breeze; we offer flexible options that are tailored to your unique needs.

Ready to reach new customers and grow your business with Grubhub? Sign up today!