Written by The Pragmatic CFO. 15+ years running restaurant P&Ls.
This article is part of The Prime Cost Series.
Theoretical food cost is what you should have spent based on what you sold. Actual food cost is what you did spend. The gap between them, in dollars, is the most useful number in your kitchen. Most operators never calculate it.
Prefer to watch? Here’s the video version, with the worked example.
The two numbers
- Theoretical: units sold of each item × that item’s recipe cost, added up, divided by food sales.
- Actual: beginning inventory + purchases − ending inventory, divided by food sales.
Theoretical comes from your POS and your recipe cards. Actual comes from your invoices and your count. If you don’t have recipe cards, you can’t get theoretical, and that’s the first fix. The food cost math covers the actual side.
A month, worked in dollars
A restaurant does $100,000 in food sales for the month. The POS mix times recipe costs comes to $28,000. That’s a 28% theoretical food cost.
The count says beginning inventory was $12,000, purchases were $33,500 and ending inventory is $13,000. Food used: $32,500. That’s 32.5% actual.
The gap is 4.5 points. On $100,000 a month, that’s $4,500 a month, $54,000 a year, gone between the walk-in and the guest.
Where the gap goes
Here’s how that $4,500 might break down. Your split will differ, but the buckets are always the same.
| Cause | Points | Per month |
|---|---|---|
| Over-portioning | 1.5 | $1,500 |
| Waste and spoilage | 1.2 | $1,200 |
| Comps and staff meals not rung in | 0.8 | $800 |
| Recipe costs out of date | 0.6 | $600 |
| Theft and unexplained | 0.4 | $400 |
| Total | 4.5 | $4,500 |
Recipe costs out of date is the one nobody suspects. If a vendor raised the price of chicken and your recipe card still has the old cost, theoretical comes out too low and the gap looks bigger than the kitchen’s real problem. Update recipe costs when invoices change. The staff meals post covers the comps line.
Find it item by item
You don’t need to count everything weekly. Count the top 10 items by dollars, mostly proteins. They’re most of the money.
Take chicken breast. The POS says you sold 600 plates at 6 ounces. That’s 225 pounds you should have used. The count says you used 262 pounds. The 37-pound gap at $4.50 a pound is $166.50 a week, $8,658 a year, on one item.
Now you know where to stand during prep. Weigh portions for a week and see if the gap closes.
What a good gap looks like
Under 1.5 points is tight. Two to three points is normal and worth working on. Over three points is real money, and it’s usually portioning and waste before it’s theft.
For where your actual should land by concept, see food cost by concept. For counting, see inventory management.
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More on this: how to lower food cost.
See the gap by category every week.
The Toolkit’s Food Cost Calculator compares ideal and actual food cost by category and flags the one that is slipping, with a recipe costing sheet and a waste log.
Get the Toolkit, $67FAQ
What is theoretical food cost?
The food cost you should have, based on what you sold and what each recipe costs. In the example, 28%.
What is actual food cost?
Beginning inventory plus purchases minus ending inventory, divided by food sales. In the example, 32.5%.
How big should the gap be?
Under 1.5 points is tight. Over three points is worth a hard look. The example’s 4.5 points is $54,000 a year.
How often should I calculate it?
Monthly for the full menu. Weekly for your top 10 items by dollars.