The restaurant business is notoriously tough, and owners have a myriad of costs ranging from health permits to commercial rent.
On average, 30% of a restaurants revenues go to labor costs, 30% goes to general overhead, and 30-33% is spent on ingredients. Making a decent profit in the restaurant industry is a high hurdle. As a consumer, when eating out you’re paying for a lot more than just the food; it’s the excellent waitstaff, unique ambiance, convenient location, in addition to the delicious dish that makes for a memorable experience. In order to cover all of these costs and still make a slim profit (generally 3-5%), restaurants need to mark up ingredients on average 300%.
But some items offer dramatically different margins than others.
We decided to analyze data from Priceonomics customer Plate IQ, a company that processes invoices for thousands of restaurants, and has unique access to the actual costs of the raw ingredients that go into our favorite foods. We decided to use our data to look at five common food items: the hamburger, the burrito, the pizza, the omelette, and the Cobb salad. For each item, we focused exclusively on West Coast prices, and analyzed two variations.
Here’s what we found: The markup you pay for a given item ranges anywhere from 155% to 636% — and generally, the higher-end meal you purchase, the better the deal you’re getting.
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First, let’s take a look at an American classic: the hamburger.
Data source: Plate IQ
Ingredients widely vary in raw cost.
For example, the restaurant we surveyed bought its ground beef for $4.20 per pound. That means each quarter-pound patty (the standard in a burger) costs them $1.05 to produce. Onions are dramatically cheaper, at $16.87 for 50 pounds — or only slightly more than one cent per burger.
For “upscale” burgers, which generally cost around $14, the total cost of raw goods is $3.08 — a 355% markup. For standard burgers ($9), the markup is even higher, at 384%.
Data source:Plate IQ
How does this stack up against other popular food items
Let’s turn to another item that is probably just as ubiquitous as the burger on the West Coast: the burrito.
Data source:Plate IQ
It the case of the burrito, the markup for the “deluxe” version — loaded with additional ingredients — is only 158%: they cost about $4.27 to make, and you buy them for $11. The meat makes up nearly 40% of the cost.
For a more standard burrito ($9), the markup is a considerably higher 346% — roughly comparable to a burger. Aside from the meat ($0.67), cheese ($0.31), avocado ($0.28), and tortilla ($0.26), every other ingredient costs less than 20 cents. Garlic costs less less a penny per burrito.
The Cobb salad tells a similar story: the higher-end farm to table version has a much lower markup than the standard salad.
Data source:Plate IQ
Despite being priced $6 more than the standard Cobb salad, the farm to table version has a much lower markup. This is because it contains so many high-cost items: artichokes ($1.15 per salad), organic chicken ($1.13), frisee ($1.08), and bougy touches like a quail egg ($0.66) and prosciutto speck ($0.44).
The standard Cobb salad, on the other hand, costs only $3.45 to make and has a 248% markup. In general, it seems salads are far less profitable for restaurants than more substantial, meatier options.
So far, we’ve seen that the markup of food items generally does hover around (or far below) the 300% standard. But several items we looked at FAR exceeded this.
Take, for instance, the omelette:
Data source:Plate IQ
We looked at two variations of the omelette: a standard spinach option, and the Denver omelette, which contains ham and cheese. Both had much higher markups than the other items we’ve looked at so far.
The Denver omelette (566% markup) costs a measly $1.35 to make: no item in the entire dish is more than 50 cents.
But the true king of marked up dishes? The pizza.
Data source:Plate IQ
A meat-loaded pizza only costs $1.90 to make, and generally sells for $14. That’s a 636% markup. A plain margherita pizza, at a cost of $1.77, retails for $12 — a 580% markup.
A big contributor to these huge markups is the incredibly low cost of making the crusts. A pizzeria can buy a 50-pound case of flour for around $15. This works out to around 20 cents’ worth of flour per pizza. The yeast costs less than one cent per pizza.
Lastly, let’s take a look at the price of some popular add-ons. Is it worth it for you to get something like sour cream added to your burrito?
Data source:Plate IQ
Add-ons generally tack on an additional $1 to $3 to the price you pay. For the restaurant, these add-ons typically don’t cost them very much to purchase.
Let’s say you add cheese ($1.50) to your standard hamburger. That slice of cheese probably costs the restaurant around 10 cents — but it raises what you pay from $9 to $10.50. That one small addition raises the markup from 384% to 436%.
Data source:Plate IQ
Aside from the fact that restaurants have to cover their operational costs, there’s a reason we pay more for food than what it’s worth in its raw form: the experience.
For the first time in recorded history, Americans are spending more at restaurants ($54 billion) than they are on groceries ($52 billion). It’s fun to eat out — and most of the time, that makes paying a 400% markup for a burger worth it.
FAQs
Ingredient Cost. The ingredient cost reflects the price to the pharmacy of actually acquiring the drug from a manufacturer or wholesaler and is calculated based on percentages of what pharmacies and wholesalers pay for the drug.
How much do restaurants spend on ingredients? ›
Most roughly spend 25 to 30 percent of a meal's menu price on its ingredients, other expenses include labor costs, equipment cost and others.
How do you calculate food cost for a recipe? ›
How to Calculate Food Cost for a Recipe. For recipe costing, add the total cost per item purchased then divide by the amount called for in the recipe. For example, if you've purchased a 3-pound pack of chicken for $12 and the recipe calls for one-and-a-half pounds, this portion of the cost is $6.
What is food cost percentages? ›
Food cost percentage is the ratio of the amount of money your restaurant spends on food and beverage ingredients (food inventory) to the revenue those ingredients generate when they're sold as menu items (food sales). It's expressed as a percentage of total revenue from food sales.
How do you price your ingredients? ›
You take the cost of your ingredients and then you break it down into units, such as per ounce or per egg. You then multiply these per-unit prices by the number of units you use. You then add up all these individual prices to find the total food cost for your dish.
How much is the product cost? ›
Product cost refers to the costs incurred to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead.
What is a good food cost? ›
What is a good food cost percentage? Most restaurants across the industry aim for a food cost percentage between 28 and 35%. That said, every restaurant is unique — a lower food cost percentage may still drive profits for a quick-serve restaurant, or a restaurant located in a small town.
What is the ideal food cost? ›
The definition of ideal food cost is the cost expected for a specific period, based on recipes and the number of times each menu-item is sold. Ideal food cost is also referred to as theoretical food cost or target food cost; theoretical because you don't take into account actual inventory depletion.
How much does it cost to make 1 pizza? ›
To build a small cheese pizza the cheese is the most expensive ingredient at $0.60, with the dough adding about $0.24 and the sauce $0.05. That adds up to $0.89 for a basic cheese pizza that could be sold for many times that amount. There are, of course, other expenses to be factored into the cost.
What is cost per serving? ›
How to calculate the cost per serving. Once you know the cost for the entire recipe, to calculate the cost per serving, simply divide the total cost by the number of servings stated in the recipe.
How to calculate selling price of a product formula
- Cost price = Raw Materials + Direct Labor + Allocated Manufacturing Overhead.
- Selling price = Cost price x 1.25 SP = 50 x 1.25.
- Gross Profit = Total Revenue – Cost of Goods Sold Gross Profit Margin = Gross Profit / Revenue.
To calculate a food cost percentage, divide the cost of the food by the total sales of food, then multiply by 100.
Is 30% food cost good? ›
Keep in mind that this is the ideal food cost percentage and doesn't account for things like spillage, theft, and inconsistent portion sizes. On average, your food cost percentage should be in the range of 28-32%, but anything under 30% is considered good.
What is the formula for cost per portion? ›
Portion cost - The cost of the serving size for that ingredient, calculated using the following formula: Portion size x unit serving cost.
What is costing with example? ›
Costing may involve only the assignment of variable costs, which are those costs that vary with some form of activity (such as sales or the number of employees). This type of costing is called direct costing. For example, the cost of materials varies with the number of units produced, and so is a variable cost.
How do you price and cost? ›
Cost is typically the expense incurred for making a product or service that is sold by a company. Price is the amount a customer is willing to pay for a product or service. The cost of producing a product has a direct impact on both the price of the product and the profit earned from its sale.
What are the 4 types of cost of production? ›
Types of production costs
- fixed cost.
- variable cost.
- total costs.
- average cost.
- marginal cost.
Cost of goods sold (COGS) definition
The cost of goods sold (COGS) is the sum of all direct costs associated with making a product. It appears on an income statement and typically includes money mainly spent on raw materials and labour.
How do you explain food cost? ›
Food cost is a percentage of sales that determines how much money we make (or lose) on what we sell as operators. To be a little more precise, actual food cost is an equation. Add your beginning inventory and purchases together, then subtract them from your ending inventory.
Why is food cost important? ›
Knowing your restaurant food costs helps with menu pricing, tracking prime costs, and hitting profitability targets. Food cost management is particularly important given the ongoing food inflation and economic uncertainty.
California Food Costs
In California, a single adult spends an average of $3,468 on food annually, and a family of four spends $10,016 on average. For context, the nationwide average annual food expenditure is $3,240 for a single adult and $9,354 for a family of four.
Is 50% food cost good? ›
What is a good food cost percentage? On average , the food cost percentage is 28-32% in many full-service and quick-service restaurants. Of course, there is no exact “good” percentage — it varies depending on the type of food served and costs of operating the restaurant.
What is the average cost per meal? ›
In 2017, people who were food secure reported spending an average of $3.02 per meal. Although roughly the same as the amount reported in 2016 ($3.00), after accounting for inflation, the 2017 meal cost is slightly lower than the amount reported in 2016 ($3.06 in 2017 dollars).
What is the cost of pizza sauce? ›
Buy Veeba Sauce Pasta Pizza 310 Gm Online At Best Price of Rs 84.55 - bigbasket.
How much is pizza in USA? ›
While the average cost of a pie nationally is $17.81—here's how much a pizza costs in every state. Check out if your state is above or below the average. Was this page helpful?
Why does pizza cost so much? ›
"Pizzerias have a very thin profit margin -- these are mom-and-pop shops, with, like five or 10 part-time employees," Morash said. "They can't afford to eat the cost, so it gets passed on." Overall, inflation on food items is up 10.4%, according to December's Consumer Price Index, the most recent report available.
How do you cost a plate of food? ›
To calculate Plate Cost, first you need to know the As Served cost of each ingredient in your menu item. The As Served cost is the cost of a single serving of that item. In order to find those costs, take the cost of a product and divide it by the number of portions you make from the item.
What is cost per order average? ›
Cost per order lets you calculate the average of how much money you spent on marketing per order. CPO also refers to a pricing model for advertising. How do you calculate the cost per order? You calculate your CPO by dividing the total advertising costs by the number of orders.
What are the 3 product costs? ›
Product costs are costs that are incurred to create a product that is intended for sale to customers. Product costs include direct material (DM), direct labor (DL), and manufacturing overhead (MOH).
Is $300 dollars enough for food? ›
By buying in bulk, trying store brands, using coupons, and some planning and preparation, I am able to feed my family on a budget for an entire month using no more than $300! You might ask, “is $300 a month enough for food?” With pre-planning and small kids, the answer is YES.
* YES! It is possible to eat healthy for $200 a month. 30 Days on $200 shopping list is intended for one person.
How much should food cost me per month? ›
For a low-cost budget for a family of four, you can plan on spending $241.70 a week or about $1,047.10 a month. Moderate-cost plan. For a moderate budget for a family of four, you would spend $301.20 a week for groceries or $1,304.70 a month. Liberal budget.
What is prime ingredient cost? ›
A prime cost is the total direct costs of production, including raw materials and labor. Indirect costs, such as utilities, manager salaries, and delivery costs, are not included in prime costs. The prime cost equation is equal to the cost of raw materials plus direct labor.
How do you calculate portion cost? ›
Portion cost - The cost of the serving size for that ingredient, calculated using the following formula: Portion size x unit serving cost.
What are the three product costs? ›
Product costs are costs that are incurred to create a product that is intended for sale to customers. Product costs include direct material (DM), direct labor (DL), and manufacturing overhead (MOH).
What are 2 examples of prime cost? ›
Examples of Prime Costs
- Direct materials. This is the raw materials used to construct a product. ...
- Piece rate pay. This is the cost of labor and related payroll taxes directly associated with the production of one additional unit. ...
- Service labor. ...
- Commission.
Let's say, as an example, a professional woodworker is hired to construct a dining room table for a customer. The prime costs for creating the table include direct labor and raw materials, such as lumber, hardware, and paint. The materials directly contributing to the table's production cost $200.
How do you solve for prime cost? ›
Prime costs can be calculated using the following formula: Prime cost = direct materials cost + direct labor cost.
What are product costs examples? ›
Examples of product costs are direct materials, direct labor, and allocated factory overhead. Examples of period costs are general and administrative expenses, such as rent, office depreciation, office supplies, and utilities.
What are the 3 principles of food costing? ›
F&B COST CONTROL FUNCTION
The food and beverage cost control is based on three main principles: - Organizing and implementing the purchasing, receiving and storing system.
How do you calculate the COGS? Cost of goods sold (COGS) is calculated by using the COGS formula, which is represented as: (Beginning Inventory + Purchases) – Ending Inventory = COGS.
How many types of costs are there? ›
This includes Fixed Costs, Variable Costs, Direct Costs, Indirect Costs, Overhead Costs, and Capital Expenditures.
