Food costing is the process of calculating exactly how much it costs to make each item you sell. It's the foundation of profitable pricing for any food business.
Whether you run a home bakery, meal prep service, or food truck, understanding food costing is essential. Without it, you're guessing at prices—and guessing usually means losing money.
Food Costing Definition
Food costing is the systematic process of calculating the cost of ingredients, labor, and overhead that go into producing a food item. The goal is to determine your true cost per serving or per unit, which then informs your selling price.
Food costing includes:
- Ingredient costs – The raw materials that go into your recipes
- Portion costs – How much each serving actually uses
- Waste and shrinkage – Product lost during prep, cooking, or spoilage
- Labor costs – Time spent preparing each item
- Overhead allocation – Rent, utilities, equipment depreciation
Why Food Costing Matters
Many small food businesses fail because they don't understand their true costs. Here's why food costing is critical:
1. It Prevents Underpricing
The most common pricing mistake is charging too little. Without food costing, you might sell a $5 cake that actually costs you $6 to make. Every sale loses money.
2. It Identifies Profit Killers
Food costing reveals which items make money and which don't. That popular cookie you sell might have a 60% profit margin, while your specialty cake barely breaks even.
3. It Enables Smart Decisions
Should you raise prices? Switch suppliers? Remove an item from your menu? Food costing gives you the data to decide.
4. It Protects Against Price Changes
When flour prices spike 20%, you need to know immediately how that affects your costs—and whether to adjust your prices.
Tired of calculating food costs manually?
DishTrack automates recipe costing so you can focus on what you do best—cooking.
Understanding Food Cost Percentage
Food cost percentage is the most important metric in food costing. It tells you what portion of your selling price goes to ingredients.
Food Cost % = (Ingredient Cost / Selling Price) x 100
For example, if a cookie costs $0.80 in ingredients and sells for $3.00:
($0.80 / $3.00) x 100 = 26.7% food cost
Target Food Cost Percentages
Different food businesses target different food cost percentages:
- Restaurants28-35% food cost
- Bakeries25-35% food cost
- Catering30-40% food cost
- Home food businesses25-40% food cost
Lower isn't always better. A 20% food cost might mean your portions are too small or you're overcharging. The key is finding the right balance for your market.
How to Calculate Food Costs
Follow these steps to calculate the food cost for any recipe:
Step 1: List All Ingredients
Write down every ingredient in the recipe, including small amounts of salt, oil, or spices. Don't forget garnishes and sides.
Step 2: Determine Unit Costs
Calculate the cost per unit for each ingredient. If you buy flour for $5 per 5-pound bag, your cost is $1 per pound or $0.0625 per ounce.
Step 3: Calculate Recipe Cost
Multiply each ingredient quantity by its unit cost. Sum all ingredients to get your total recipe cost.
Step 4: Add Waste Factor
Apply a waste factor (typically 5-10%) to account for spillage, spoilage, and prep waste.
Step 5: Calculate Per-Serving Cost
Divide total recipe cost by the number of servings to get your cost per serving.
Pro Tip: A food pricing calculator like DishTrack automates all these calculations. Enter your ingredients once, build your recipes, and costs update automatically when prices change.
Food Costing Example: Chocolate Chip Cookies
Let's walk through a real food costing example. Say you're making chocolate chip cookies:
- All-purpose flour (2.25 cups = 10 oz)$0.63
- Butter (1 cup = 8 oz)$2.00
- Sugar (0.75 cup)$0.30
- Brown sugar (0.75 cup)$0.35
- Eggs (2 large)$0.50
- Vanilla extract (1 tsp)$0.25
- Baking soda (1 tsp)$0.02
- Salt (1 tsp)$0.01
- Chocolate chips (2 cups)$2.50
- Total batch cost$6.56
This batch makes 48 cookies. Adding a 7% waste factor:
$6.56 x 1.07 = $7.02 per batch
$7.02 / 48 cookies = $0.15 per cookie
Now you know each cookie costs $0.15 in ingredients. To hit a 30% food cost, you'd price each cookie at:
$0.15 / 0.30 = $0.50 per cookie
Or sell them in packs of 6 for $3.00.
Common Food Costing Mistakes
Avoid these common errors when calculating food costs:
- Forgetting small ingredientsSalt, oil, and spices add up. Include everything.
- Using purchase weight, not usable weightA head of lettuce might weigh 16 oz, but after trimming you only get 12 oz.
- Not updating costsIngredient prices change. Review and update your costs monthly.
- Ignoring overheadIngredients are just one cost. Packaging, utilities, and your time matter too.
Using Food Costing Software
While you can do food costing with a spreadsheet, dedicated software makes it much easier. DishTrack is a food pricing calculator and cost management platform designed specifically for small and home-based food businesses.
With DishTrack, you can:
- Enter ingredients once and reuse them in multiple recipes
- See costs update automatically when you change prices
- Track your food cost percentage for every item
- Allocate overhead costs across your products
- Generate reports to understand your profitability
Price Your Recipes with Confidence
DishTrack helps food businesses calculate accurate costs and set profitable prices—automatically.
Get Started FreeLearn More About Food Costing
Dive deeper into food costing with these resources: