Running a profitable foodservice operation, whether in a physical location or selling food online, starts with understanding your numbers. One of the most critical calculations is food costing. Knowing your food cost not only helps set the right price for your dishes but also ensures your business remains financially sustainable.
Whether you're running a restaurant, food truck, or launching a digital kitchen, a solid grasp of food costing is essential. And if you're applying for a license to sell food or a permit to sell food, demonstrating control over food costs may even be part of the process in some jurisdictions.
What Is Food Costing and Why Does It Matter?
Food costing refers to the cost of ingredients used to make a dish, excluding labour and overheads. Mastering this helps you:
- Determine accurate pricing for menu items
- Control profit margins
- Make strategic menu adjustments
- Benchmark your prices against the competition
For those selling food online, food costing is especially crucial to ensure delivery and packaging costs don't eat into profits.
The Basics of Recipe Costing
Understanding the fundamentals of recipe costing allows you to:
- Track the exact cost per dish
- Price your offerings to meet your target profit
- Identify underperforming dishes and adjust or promote them accordingly
- Ensure profitability across all sales channels, including online food sales
Food Costing Tools & Techniques
Here are essential tools for calculating accurate food costs:
- Standard Recipe: A consistent reference that ensures pricing based on accurate yields
- Up-to-Date Ingredient Costs: Monitor regularly for price fluctuations
- Recipe Cost Sheet: Use this to document:
- Ingredient names
- Quantity used
- Cost per unit
- Cost per portion
How to Calculate Food Cost — Step-by-Step
- Fill out a Recipe Cost Sheet with a standardized recipe
- List the latest purchase prices for each ingredient
- Calculate the actual cost of each item based on portion used
- Sum all ingredient costs to get the total recipe cost
- Divide by number of portions to determine the cost per portion
Determining the Selling Price
Once your food cost is known, apply this formula:
Selling Price = (Food Cost + Labour + Overhead) + Desired Profit
Alternatively, use the food cost percentage method:
If your food cost is $25 and your target percentage is 33%:
Selling Price = $25 ÷ 0.33 = $75.75
This ensures your dish covers costs and meets your profit goals.
What Is the Ideal Food Cost Percentage?
Most food businesses aim for 30% to 45% food cost of the selling price. However, this can vary based on the type of foodservice operation, labour costs, and whether you're selling food online, where packaging and delivery add new cost variables.
Why This Matters When Applying for a Food License or Selling Online
When applying for a license to sell food or a permit to sell food, some jurisdictions may request financial plans or food cost calculations to ensure sustainability. Demonstrating food costing practices can strengthen your application and business plan.
Likewise, for entrepreneurs selling food online, understanding food cost helps price for profitability while remaining competitive in digital marketplaces.
Conclusion
Food costing is not just about math—it's about maximising profitability, reducing waste, and confidently growing your food business. Whether you're managing a busy kitchen or starting your own venture selling food online, understanding food cost is your first step to long-term success.