Food cost ratio: calculate it, read it, improve it
The food cost ratio tells you what share of a dish’s selling price pays for its ingredients. It’s the first profitability indicator for a menu: simple to work out, it shows which dishes earn money and which ones cost it.
The formula
Food cost ratio = ingredient cost of one portion ÷ selling price excluding VAT.
Always use the price excluding VAT: the VAT isn’t yours. A dish sold at €18 including 10% VAT brings in €16.36 excluding VAT.
A worked example
A porcini risotto for 10 portions: arborio rice €3.24, porcini €15.20, stock €2.10, parmesan, butter and wine €6.46. The total ingredient cost is €27, i.e. €2.70 per portion.
Sold at €18 including VAT, i.e. €16.36 excluding VAT, its food cost ratio is 2.70 ÷ 16.36 = 16.5%. Each portion leaves €13.66 of gross margin.
The mark-up multiplier
The multiplier is the inverse of the ratio: selling price excluding VAT ÷ ingredient cost. A multiplier of 3.5 corresponds to a ratio of about 29%. To set a price, multiply the ingredient cost by your target multiplier, then add VAT.
What ratio should you aim for?
Many restaurants aim for 25 to 35% across the menu, depending on the type of cuisine and the cost of ingredients. That overall figure hides gaps: a dessert can be at 15%, a fish dish at 40%.
A high ratio isn’t necessarily a problem: it’s the margin in euros that pays the rent and wages. A dish at 40% leaving €15 of margin can earn more than a dish at 20% leaving €8.
Five levers to improve it
- Purchasing: compare your suppliers ingredient by ingredient.
- Portions: a portion served more generously than the costing costs money on every plate.
- Waste: trimmings, unsold food and products thrown away at their use-by date raise the real cost.
- Prices: adjust a dish whose ingredients have gone up.
- The menu: feature the dishes that leave the most margin in euros.
The food cost ratio only counts ingredients. The full cost adds labour and energy: it’s more accurate for setting a floor price.
Frequently asked questions
Should I use the price including or excluding VAT?
Excluding VAT. VAT is collected for the State: including it would understate the ratio.
How do I count a sub-recipe?
First work out its cost for the quantity produced, bring it back to a unit (a litre of stock, a kilo of pastry), then count the quantity used in the dish.
How is it different from the full cost?
The food cost ratio only counts ingredients. The full cost adds the labour and energy spent on the dish.
This guide provides general information. It doesn’t replace advice from your accountant or a lawyer.