Food Cost & Margin Guide

Understanding your food costs isn't just accounting—it's survival. The difference between a profitable food business and one that struggles often comes down to knowing exactly what each dish costs, pricing appropriately, and controlling the margins that keep you in business.

This guide covers the practical fundamentals of food costing for UK restaurants, cafés, pubs, and catering businesses. No complex formulas—just the essentials you need to price confidently and protect your bottom line.

In This Guide

Understanding Food Cost Percentage

Food cost percentage is the foundation of menu pricing. It tells you what proportion of your selling price goes on ingredients—and therefore what's left for everything else.

The Basic Formula

Food Cost % = (Cost of Ingredients ÷ Selling Price) × 100

If a dish costs £3.50 to make and sells for £12.00:
(£3.50 ÷ £12.00) × 100 = 29.2% food cost

This means 29.2% of what the customer pays goes on ingredients. The rest covers labour, rent, utilities, and (hopefully) profit.

Why It Matters

Food cost is typically your second-largest expense after labour. Small changes compound quickly:

On £500,000 annual food sales:
• 30% food cost = £150,000 on ingredients
• 35% food cost = £175,000 on ingredients
That 5% difference is £25,000.

Gross Profit vs Food Cost

These are two sides of the same coin:
Gross Profit % = 100% - Food Cost %

A 30% food cost means 70% gross profit. Some businesses track gross profit; others track food cost. Either works—just be consistent.

The True Cost

Raw ingredient cost isn't the whole picture. True dish cost includes:

All ingredients (including oil, seasonings, garnishes)
Prep waste (peelings, trimmings, bones)
Cooking losses (meat shrinkage, evaporation)
Portion variation and plating waste

Calculating Dish Costs Accurately

Accurate costing requires attention to detail. Guessing or using rough figures is how margins quietly disappear.

Step 1: List Every Ingredient

Write down everything that goes into the dish:

Main ingredients (protein, carbs, vegetables)
Sauces and dressings
Cooking fats and oils
Seasonings and herbs
Garnishes
Accompaniments (bread, butter)

Miss the "small stuff" and you'll underestimate costs by 5-15%.

Step 2: Calculate Portion Costs

Work out what each ingredient costs per portion:

Portion Cost = (Pack Price ÷ Portions per Pack) × Portions Used

Example: 2.5kg chicken breast costs £18.75. You get 12 portions.
£18.75 ÷ 12 = £1.56 per portion

Step 3: Account for Waste

Raw weight isn't usable weight:

Vegetables: 10-30% loss (peeling, trimming)
Meat: 20-40% cooking loss
Fish: 40-60% if filleting whole fish

A 200g raw chicken breast becomes ~150g cooked. Cost accordingly.

Step 4: Add It Up

Total all portion costs for the complete dish cost. Then calculate food cost percentage against your selling price.

Review regularly. Supplier prices change. Recipes evolve. A dish costed six months ago may have drifted significantly.

Recipe Cards

Document every dish with a recipe card showing:

Exact ingredients and quantities
Cost per ingredient
Total dish cost
Selling price and food cost %
Plating instructions

This ensures consistency and makes re-costing straightforward.

Common Costing Mistakes

Forgetting the small things: Oil, butter, seasoning—they add up.
Using purchase weight: Use usable/cooked weight.
Ignoring price changes: Costs from last year aren't today's costs.
Excluding accompaniments: If it's on the plate, it's in the cost.

Target Margins by Business Type

Different business models support different margins. What works for a fine-dining restaurant won't work for a sandwich bar. Here are typical UK industry benchmarks for 2024-25.

Quick Service & Takeaway

Target food cost: 20-28%

High volume, lower prices, faster turnover. Efficiency is everything. Tight portion control matters because you're serving hundreds of portions. Even 5p variance per portion adds up fast. QSRs run leaner than table-service restaurants.

Casual Dining Restaurants

Target food cost: 28-32%

The industry standard for most UK restaurants. Balance between quality and accessibility. Mid-range pricing means margins need protection through portion control and menu engineering. Staff meals and waste can significantly impact overall food cost.

Pubs & Gastropubs

Target food cost: 32-40%

Food often subsidised by drinks margin. Wet sales at 60-70% GP can offset tighter food margins. Traditional pub grub typically 30-35%; gastro menus with premium ingredients push toward 38-40%. Many pubs accept higher food cost because drinks compensate—the blended margin matters.

Cafés & Coffee Shops

Target food cost: 30-40% (food items)

Coffee carries very high margins (75%+ GP, so ~15-25% cost) which subsidise food. Cakes and pastries typically 25-30% food cost. Sandwiches and hot food often run 35-40%. The blended margin across all sales is what matters—aim for overall 25-30%.

Fine Dining

Target food cost: 30-38%

Premium ingredients cost more, but higher prices compensate. A £45 main at 35% food cost still delivers £29.25 gross profit per dish. Fine dining can sustain slightly higher food cost percentages because absolute profit per cover is substantial and customers expect quality.

Contract Catering

Target food cost: 38-45%

Schools, care homes, and corporate contracts operate on thin margins with costs often specified contractually. Volume purchasing helps control costs, but 35%+ food cost increases since 2021 have squeezed many operators. Labour efficiency and waste management are critical.

Remember: These are guidelines, not rules. Your rent, labour costs, and business model determine what food cost percentage you can sustain profitably. Many UK businesses are currently running above these targets due to sustained cost pressures.

Understanding Prime Cost

Food cost is only half the picture. Prime cost—food plus labour—is the key metric for overall profitability.

What Is Prime Cost?

Prime Cost = Food Cost + Labour Cost

These are your two biggest controllable expenses. Together they typically consume 55-65% of revenue in a healthy hospitality business.

The 60-65% Rule

Industry guidance suggests prime cost should not exceed 60-65% of total sales. Above this, there's not enough left for rent, utilities, and profit.

Example: £500,000 revenue
• 30% food cost = £150,000
• 30% labour cost = £150,000
• Prime cost = 60% (£300,000)

UK Labour Cost Benchmarks

Quick service: 20-30% of revenue
Casual dining: 30-35% of revenue
Fine dining: 35-40% of revenue

The National Living Wage rises to £12.71/hour from April 2026 (up from £12.21 in 2025). Combined with National Insurance increases that added £3.2 billion to hospitality wage bills, labour costs remain under significant pressure. Many operators have responded by reducing hours (61%) or staffing levels (48%).

The Trade-Off

If food costs rise, labour must fall (or vice versa) to maintain prime cost. This is why cost control matters across both areas simultaneously. You can't optimise food cost in isolation.

Menu Pricing Strategies

Pricing isn't just cost-plus arithmetic. It's about what customers will pay, what competitors charge, and how you position your business.

Cost-Plus Pricing

The foundation: calculate your cost, decide your target margin, set the price.

Selling Price = Food Cost ÷ Target Food Cost %

If dish costs £4.00 and you want 30% food cost:
£4.00 ÷ 0.30 = £13.33 selling price

Simple, but ignores what customers will actually pay.

Market-Based Pricing

What do similar businesses charge for similar dishes? You can't price significantly above competitors without clear justification (better quality, better location, better experience).

If the market rate for fish and chips is £14-16, pricing at £22 needs explaining. Pricing at £12 leaves money on the table.

Value-Based Pricing

What's the dish worth to the customer? Perceived value comes from:

Ingredient quality and provenance
Presentation and portion size
Uniqueness or signature dishes
Overall experience and service

A £5 burger and a £15 burger might cost similar amounts to make—but one delivers more perceived value.

Psychological Pricing

£9.95 vs £10.00: Works in retail, less so in restaurants.
Round numbers: Clean prices (£12, £15, £18) feel more premium.
Price anchoring: A £35 steak makes the £22 lamb look reasonable.
Decoy pricing: Three options where the middle one is the "right" choice.

When to Raise Prices

Review prices when:

Supplier costs increase significantly
Your food cost % creeps above target
Annually, as a minimum
When you improve quality or portions

Small regular increases (2-5%) are better received than occasional large jumps.

How to Raise Prices

Add value: Improve portions or quality slightly when raising prices.
Raise selectively: Not everything needs to increase equally.
New menu, new prices: Seasonal menu changes are natural price reset moments.
Don't apologise: Confident pricing feels premium; apologetic pricing feels desperate.

Our Menu Planning & Recipe Costing Guide covers menu design and pricing strategy in more detail.

Portion Control & Consistency

Inconsistent portions destroy margins. If your recipe card says 180g of chicken but the kitchen serves 220g, you've just given away 22% of your protein cost.

Why Portions Drift

Generous chefs: Kitchen staff want customers happy—over-portioning feels like good service.
No specifications: Without clear standards, everyone guesses differently.
No equipment: Can't portion accurately without scales, scoops, and ladles.
Rush periods: Accuracy suffers when the kitchen is slammed.

The Cost of Variation

10% over-portioning on protein alone can cost 2-3% on overall food cost. On £300,000 food sales, that's £6,000-9,000 per year—given away.

Multiply across all ingredients, every dish, every service—portion drift is one of the biggest margin killers in hospitality.

Portion Control Tools

Digital scales: Essential for proteins, expensive ingredients.
Portion scoops: Numbered scoops for consistent sides, rice, mash.
Ladles: Sized ladles for sauces, soups, gravies.
Pre-portioned items: Individually portioned proteins remove guesswork.

Recipe Cards & Training

Every dish should have a recipe card with exact quantities and plating photos. New staff should be trained on portion standards. Regular spot-checks keep standards consistent.

If you can't describe exactly what should be on every plate, neither can your kitchen team.

Pre-Portioning

Portion proteins during prep, not during service. Weigh out expensive ingredients in advance. It's faster during service and more accurate than portioning under pressure.

Balancing Quality & Control

Portion control isn't about being mean—it's about consistency. Customers should get the same dish every time. A generous 220g portion today and a standard 180g tomorrow is worse than consistent 180g every time.

Improving Margins Without Cutting Quality

Better margins don't require worse food. Often the biggest opportunities are in waste reduction, smarter purchasing, and menu design.

Reduce Waste

Track what you throw away—prep waste, plate waste, spoilage, over-production. Every bin bag of food is money in the skip. Better forecasting, FIFO stock rotation, and using trim creatively can recover significant margin.

Cross-Utilise Ingredients

Design menus so ingredients serve multiple dishes. Roast chicken becomes chicken sandwiches, chicken salad, and chicken soup. Vegetable trim becomes stock. Cross-utilisation reduces waste and improves buying power.

Review Your Supplier

When did you last compare prices? Are you getting the best deal for your volumes? Could consolidating suppliers improve your position? Even 2-3% better buying flows straight to margin.

Our guide to choosing a supplier covers what to look for.

Menu Engineering

Not all dishes are equal. Identify your:

Stars: High margin, high popularity—promote these
Plowhorses: Low margin, high popularity—can you improve margin?
Puzzles: High margin, low popularity—better positioning?
Dogs: Low margin, low popularity—remove them

Promote High-Margin Items

Menu placement, staff recommendations, specials boards—all influence what customers order. Train staff to suggest higher-margin dishes. Position them prominently on menus. A 5% shift in sales mix toward better-margin items moves the needle.

Review Regularly

Food cost isn't "set and forget." Review monthly at minimum:

Overall food cost percentage
Cost changes on key ingredients
Wastage levels
Menu mix and sales patterns

Problems caught early are easier to fix.

Common Mistakes That Kill Margins

These errors are common, costly, and avoidable.

Not Knowing Your Costs

If you haven't costed every dish accurately, you're guessing. Some dishes might be making money; others might be losing it. You can't manage what you don't measure.

Underpricing

Fear of losing customers leads to prices that don't sustain the business. If you're significantly cheaper than competitors, you're probably leaving money on the table—or your costs are unsustainably low.

Ignoring Waste

Spoilage, over-production, plate waste, prep waste—it all erodes margin. "A bit of waste is normal" is how 5% of your food cost walks out in bin bags.

Staff Meals & Perks

Uncontrolled staff eating adds up. A team of 10 eating £5 of food each per shift is £100/day—£36,500/year. Have a clear staff meal policy and cost it into your calculations.

Chasing Cheap Ingredients

The cheapest option isn't always the best value. Lower-quality ingredients can mean more waste, worse customer experience, and damage to reputation. Cost-per-usable-portion matters more than cost-per-kilo.

Forgetting to Re-Cost

Supplier prices change. Recipes evolve. Portion sizes drift. A dish costed a year ago might have a completely different margin today. Regular re-costing keeps you informed.

Frequently Asked Questions

What food cost percentage should I aim for?

It depends on your business type. Quick-service typically aims for 20-28%, casual dining restaurants 28-32%, pubs 32-40% (offset by drinks margins), and fine dining 30-38%. Your specific rent, labour costs, and business model determine what's sustainable. Track your actual costs and keep prime cost (food + labour) below 60-65% of revenue.

How do I calculate the food cost of a dish?

List every ingredient including garnishes, oils, and seasonings. Calculate the cost per portion for each ingredient (pack price ÷ portions per pack). Add them together for total dish cost. Divide by selling price and multiply by 100 to get food cost percentage. Remember to account for waste and prep losses—raw weight isn't usable weight.

When should I raise my menu prices?

Review prices when supplier costs increase significantly, when your food cost percentage creeps above target, annually as a minimum, or when you improve quality. Small regular increases (2-5%) are better received than occasional large jumps. Seasonal menu changes are natural price reset moments.

How can I improve margins without cutting quality?

Focus on portion control and consistency, reduce waste through better stock management, cross-utilise ingredients across dishes, negotiate better supplier pricing based on volumes, review your menu mix to promote higher-margin items, and ensure accurate costing so you know where margins actually are.

Should I use the same margin for all dishes?

Not necessarily. Different dishes can carry different margins based on customer expectations, competition, and strategic importance. A "loss leader" starter might draw customers who then order high-margin mains and drinks. The overall blended margin across your menu is what matters for profitability.

Looking for Better Value from Your Supplier?

Your food costs start with what you pay for ingredients. Xlent Foods offers personalised wholesale pricing based on your actual usage—not generic price lists. See how your current costs compare.

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