What Is Food Cost Percentage and How Do You Reduce It?
Food cost percentage is one of the most important numbers in any food business. It tells you what proportion of your revenue is being spent on ingredients — and whether your pricing is sustainable. Here's how to calculate it, what target to aim for, and what to do if yours is too high.
What is food cost percentage?
Food cost percentage (also called food cost %) is the ratio of your ingredient costs to your revenue, expressed as a percentage. It tells you how much of every pound you earn goes on the raw materials to make your products.
Example: ingredients cost £0.80, selling price £3.00
Food cost % = (£0.80 ÷ £3.00) × 100 = 26.7%
A food cost % of 26.7% means that for every £3.00 you charge, £0.80 goes on ingredients. The remaining £2.20 must cover labour, packaging, overheads and profit.
What is a good food cost percentage?
Target ranges vary by business type, but here are typical benchmarks for small UK food businesses:
If your food cost % is consistently above 40%, your pricing is likely too low relative to your ingredient costs. If it's below 20%, you may have room to use better-quality ingredients or improve your margins in other ways.
Why food cost percentage matters more than absolute cost
A product that costs £2.00 to make and sells for £5.00 has a food cost % of 40%. A product that costs £0.50 to make and sells for £1.00 has a food cost % of 50%. The second product is cheaper to make in absolute terms, but it's actually less profitable as a proportion of revenue.
Tracking food cost % across your whole product range lets you compare profitability on a like-for-like basis — regardless of price point.
How to calculate food cost percentage for your business
To calculate your overall food cost % for a period:
- Add up the total cost of all ingredients used during the period
- Divide by your total revenue for the same period
- Multiply by 100
To calculate it per product, use the cost per portion (see our recipe costing guide) divided by the selling price.
7 ways to reduce your food cost percentage
1. Audit your recipes
Start by calculating the food cost % for every product you sell. You may find that some products are significantly more expensive to make than others — and that you've been subsidising them without realising it.
2. Reduce waste
Waste is one of the biggest hidden costs in food production. Track how much of each ingredient you're actually using versus buying. Better portion control, standardised recipes and smarter ordering can cut waste by 10–20%.
3. Negotiate with suppliers
As your volume grows, you have more leverage. Even a 5–10% reduction in ingredient costs can meaningfully improve your food cost %. Ask for volume discounts, longer payment terms, or better pricing on your highest-volume ingredients.
4. Review your pricing
If your food cost % is above your target, the simplest fix is to raise prices. Many small food businesses are reluctant to do this, but customers who value quality are often less price-sensitive than you think. A 10% price increase on a £3.00 product is 30p — most customers won't notice.
5. Simplify your product range
A smaller range of high-margin products is often more profitable than a large range of mixed-margin products. Complexity has a cost — more ingredients to manage, more potential for waste, more time spent on production.
6. Use seasonal and local ingredients
Seasonal ingredients are typically cheaper and better quality. Building your menu around what's in season can reduce ingredient costs while improving the product.
7. Track it regularly
Food cost % isn't a one-time calculation. Ingredient prices change, recipes evolve, and your product mix shifts. Review your food cost % at least monthly — and update your recipe costs whenever a supplier changes their prices.
FoodCore is kitchen management software for small UK food businesses — recipe costing, Natasha's Law labels, shopping lists and order tracking.
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