How to Calculate Food Cost Percentage with Inventory

What is food cost percentage and why it matters

Food cost percentage measures how much of your revenue goes to ingredients. It tells you whether your menu prices cover your costs and whether food is walking out the door without being sold.

The formula is simple: divide the cost of food sold by food sales, then multiply by 100. A restaurant running at 28 to 35 percent food cost is in line with industry averages (MarginEdge, 2026). Above 35 percent, you are either underpricing your menu or losing food to waste, theft, or over-portioning.

Most operators know the formula but skip the inventory step. Without accurate inventory counts, your food cost number is a guess.

The inventory-based formula

To calculate food cost percentage with inventory, you need three numbers:

• Beginning inventory (the dollar value of all food on hand at the start of the period)
• Purchases (the total dollar amount of food bought during the period)
• Ending inventory (the dollar value of all food on hand at the end of the period)

The formula for cost of goods sold (COGS) is:

COGS = Beginning Inventory + Purchases − Ending Inventory

Then divide COGS by food sales and multiply by 100 to get your food cost percentage:

Food Cost % = (COGS ÷ Food Sales) × 100

Step 1: Count your beginning inventory

Beginning inventory is the dollar value of all food in your walk-in, dry storage, and prep area at the start of the period. Most operators count inventory on the last day of the month after close.

Walk through each storage area with a clipboard or tablet. Count every case, bag, and container. Multiply the quantity on hand by the unit price you paid (check your invoices or use your POS system's item cost if it tracks inventory).

Add up the total. That number is your beginning inventory for the month.

If this is your first time counting inventory, your beginning inventory is zero. Next month, your ending inventory becomes your beginning inventory.

Step 2: Add up your purchases

Purchases are the total dollar amount of food invoices received during the period. Pull invoices from your suppliers, or export a report from your accounting software.

Include everything: produce, protein, dry goods, dairy. Do not include beverages (alcohol, coffee, soda) unless you are calculating a combined COGS. Do not include paper goods, cleaning supplies, or smallwares — those are operating expenses, not cost of goods sold.

If you pay some invoices the following month, include them in the month the food was delivered, not the month you paid.

Step 3: Count your ending inventory

Ending inventory is the dollar value of all food on hand at the end of the period. Use the same method as beginning inventory: count every item, multiply by unit cost, add up the total.

This step is the one most operators skip. Without an ending inventory count, you cannot calculate true COGS. You are left guessing based on invoices alone, and invoices do not account for waste, theft, or food sitting in the walk-in.

Step 4: Calculate COGS and food cost percentage

Plug your three numbers into the formula:

COGS = Beginning Inventory + Purchases − Ending Inventory

Then divide COGS by food sales for the same period:

Food Cost % = (COGS ÷ Food Sales) × 100

Example with numbers

A 60-seat restaurant runs the calculation for March:

• Beginning inventory (March 1): 8,200 dollars
• Purchases (March invoices): 22,400 dollars
• Ending inventory (March 31): 7,800 dollars
• Food sales (March): 68,000 dollars

COGS = 8,200 + 22,400 − 7,800 = 22,800 dollars

Food Cost % = (22,800 ÷ 68,000) × 100 = 33.5 percent

The restaurant is within the 28 to 35 percent range reported by MarginEdge (2026) for the industry. If the number had come in at 38 percent, the operator would know to check portion sizes, waste logs, and menu pricing.

Common mistakes to avoid

Skipping the ending inventory count. Without it, you are calculating purchases divided by sales, not true COGS. Purchases include food you have not sold yet.

Mixing food and beverage. Calculate food cost and beverage cost separately. Beverage (alcohol, coffee, soda) has different target percentages. Bars should aim for 18 to 24 percent beverage cost (Backbar Academy, 2019). Mixing the two hides problems in each category.

Counting inventory at different times each month. Pick a consistent day and time (last day of the month after close is standard). Inconsistent timing makes month-to-month comparisons useless.

Using stale unit costs. If your supplier raised the price of chicken in February and you are still using January costs in your inventory count, your COGS will be wrong. Update unit costs every time you receive an invoice with a price change.

How often should you calculate food cost

Monthly is the minimum. Weekly is better if you have the time. Daily food cost is possible with a POS system that tracks inventory in real time, but most small operators do not have that setup.

Monthly gives you enough data to spot trends without drowning in spreadsheets. If your food cost jumps from 32 percent in March to 37 percent in April, you know to investigate immediately — not three months later when your accountant closes the books.

What to do when food cost is too high

If your food cost percentage is above 35 percent, start with these three checks:

Check portion sizes. Weigh five plates of your top-selling entree during service. If portions are larger than the recipe card, you are giving away margin.

Check waste logs. Track what you throw out for two weeks. Spoilage, trim waste, and over-prepping add up fast.

Check menu pricing. Pull the cost of each recipe and divide by your target food cost percentage (30 percent is a common target). If the math says you should charge 24 dollars and you are charging 19 dollars, you have a pricing problem.

Food cost is half the picture

Food cost percentage tells you how much of your revenue goes to ingredients. Labor cost percentage tells you how much goes to wages and benefits. Add the two together and you get prime cost.

Prime cost is the single best predictor of restaurant profitability. Full-service restaurants should aim for 60 to 65 percent prime cost (Restaurant365, accessed 2026). If your food cost is 32 percent and your labor cost is 36 percent, your prime cost is 68 percent — above target, even though each piece looks acceptable on its own.

Tracking food cost with inventory is the first step. Tracking prime cost is the next.

Calculate your food cost percentage and prime cost in under 5 minutes with the free Food Cost & Prime Cost Calculator. No credit card. An Excel file that also opens in Google Sheets, with sourced industry benchmarks built in. https://finoutils.gumroad.com/l/free-food-cost-calculator