How to Choose the POS for Your Bar, Restaurant, or Beach Bar in Malaga (2026 Guide)
12 min
Complete guide 2026
Food Costing in Hospitality: Calculate Costs and Maximize Profits
Learn how to do food costing step by step with real examples, an interactive calculator, and discover how technology can automate this critical process for your business's profitability.
15 min read
Updated January 2026
By hospitality experts
60% of restaurants that close do so because of poor cost management. Food costing is your best tool to avoid it.
Article content
Basics
What is food costing and what is it for?
Food costing (or 'escandallo' in Spanish) is a fundamental management tool that allows you to calculate the exact production cost of each dish on your menu. It is, essentially, the economic technical sheet of a recipe.
It goes beyond simply adding up ingredients: it considers shrinkage (what is lost during cleaning and preparation), gross and net weights, real purchase costs, and the final yield per portion.
Without food costing, you are setting prices blindly. You could be selling dishes below their real cost or, worse yet, losing money with every sale without knowing it.
Food Cost = Total cost of all ingredients in a recipe ÷ Number of portions it produces
Total control
Know the real cost of every dish and make informed decisions about prices and menu.
Profitability
Why food costing is vital for your business
In hospitality, the difference between a profitable business and one that closes is in the margins. And margins start with good food costing.
60%
of restaurants close in the first 3 years due to poor economic management
25-35%
is the ideal food cost over the sales price in hospitality
15-20%
loss due to poorly calculated shrinkage is common without food costing
3x
more profitable are businesses that strictly control their costs
The reality many ignore
A dish that seems profitable can be generating losses if you haven't correctly calculated shrinkage, frying oil, garnishes, or ingredients that go to waste. Without food costing, you are flying blind.
Key elements
The 6 essential components of a food cost sheet
To do proper food costing, you need to collect and calculate these elements for every ingredient in your recipe.
Ingredient list
All ingredients that make up the dish, not forgetting oils, spices, garnishes, and decoration elements.
Gross and net weight
Gross weight is what you buy; net weight is what you actually use after cleaning, peeling, and preparing the ingredient.
Shrinkage percentage
The difference between gross and net expressed as a percentage. It varies by product: a steak has little shrinkage, an artichoke a lot.
Cost per unit
The real purchase price per kilogram or unit, updated with current prices from your suppliers.
Resulting portions
How many portions or dishes the full recipe produces. Fundamental for calculating unit cost.
Profit margin
The percentage you add to the cost to get the sales price. In hospitality, this is usually between 65% and 75%.
Practical guide
How to do food costing step by step
Follow these 6 steps to create a professional food cost sheet for any dish on your menu.
1
List all ingredients
Write down absolutely everything you need to prepare the dish: main ingredients, garnishes, oils, spices, sauces, and decoration. Don't forget anything; every gram counts.
Include pro-rated frying oil if the dish is fried. It's a hidden cost that many forget.
2
Calculate gross weight for each ingredient
Weigh each ingredient exactly as you receive it from the supplier, before any handling. This is your starting point for calculating real costs.
Use a precision scale. Small weight variations can mean big differences in monthly costs.
3
Determine shrinkage for each product
Weigh the ingredient after cleaning, peeling, and preparing it. The difference between gross and net is the shrinkage. Express it as a percentage.
Typical shrinkage: potato 15-20%, onion 10%, whole fish 40-50%, meat with bone 25-35%, lettuce 20%.
4
Apply price per kilogram
Use the real purchase price from your latest invoices. Calculate the cost of the net amount you actually use in the dish.
Update prices monthly. Raw material costs fluctuate, and your costing must reflect that.
5
Sum all costs
Add the cost of each ingredient to get the total recipe cost. Divide by the number of portions to get the unit cost.
Don't forget to include a small percentage (2-5%) to cover unforeseen items: spoiled ingredients, errors, etc.
6
Calculate sales price
Apply your target margin to the cost per portion. If your target food cost is 30%, the sales price will be: cost ÷ 0.30.
Round to a psychologically attractive price (€9.90 instead of €9.73) and adjust the margin if necessary.
Food Cost Formula
Sales Price = Raw Material Cost ÷ (Target Food Cost / 100)
Real cases
3 practical examples of food costing
Let's see how to apply all the above with three typical dishes from different price ranges.
Spanish Omelette
Economy dish - Tapas
Potatoes (400g gross → 340g net)€0.68
Eggs x6€1.20
Onion (100g gross → 85g net)€0.12
Olive oil (100ml)€0.70
Total cost:€2.70
Sales price:€8.50
Margin:68%
Mushroom Risotto
Mid-range - Main
Arborio rice (80g)€0.40
Mixed mushrooms (120g gross → 100g)€2.40
Homemade broth (300ml)€0.45
Parmesan, butter, wine€1.25
Total cost:€4.50
Sales price:€14.90
Margin:70%
Ribeye with Garnish
Premium dish - Main
Aged ribeye (300g)€7.50
Roasted potatoes (150g)€0.35
Padrón peppers (80g)€0.65
Maldon salt, oil, herbs€0.40
Total cost:€8.90
Sales price:€26.90
Margin:67%
Interactive tool
Calculate the food cost of your dish
Use our free calculator to determine the cost and suggested sales price for any recipe.
Food Cost Calculator
Calculate your dish cost in real-time
Try with an example:
%
0.00€
%
%
Total cost
0.00€
Price excl. VAT
0.00€
RRP (incl. VAT)
0.00€
Tip: VAT is not restaurant income. Calculate your margin on the price without VAT. The ideal food cost is between 25-35% of the sales price before taxes.
Want to automate this process and keep your costing always up to date?
Request your free demoAvoid mistakes
6 common food costing mistakes (and how to avoid them)
These are the most frequent failures restaurateurs make when doing costing. Learn to avoid them.
1
Forgetting frying oil
Oil used for frying degrades and must be changed. It is a real cost that many do not attribute to fried dishes.
Calculate oil cost per fry and divide it among the dishes fried in each batch.
2
Not updating prices
Supplier prices change constantly. Costing with prices from 6 months ago is useless.
Review and update your costing at least once a month, or whenever you receive new invoices.
3
Underestimating shrinkage
Using theoretical shrinkage percentages instead of actually measuring them in your kitchen with your products.
Measure real shrinkage for your main ingredients. It can vary by supplier and season.
4
Ignoring seasonality
Prices for fruits, vegetables, and fish vary enormously by season.
Create seasonal costing or adjust sales prices when costs rise significantly.
5
Not including garnishes
Bread, sauces, decoration, and 'free' sides have a real cost.
Include absolutely everything in the cost sheet: complimentary bread, sauces, lemon, parsley, extra napkins...
6
Setting and forgetting
A food cost sheet kept in a drawer is useless if not used to make decisions.
Use your costing to review the menu, eliminate unprofitable dishes, and adjust prices.
Innovation
How technology revolutionizes food costing
The traditional method of costing with Excel or paper has major limitations. Modern technology solves these problems.
The problem with the manual method
Entering data by hand consumes hours every week
Supplier prices quickly become outdated
Calculating real shrinkage is tedious and rarely done
There are no alerts when a dish stops being profitable
Food&Service: AI Food Costing
OCR for supplier invoices
Scan your invoices with your phone and prices are automatically updated across all your cost sheets. The best OCR on the market.
Stock and cost alerts
Receive warnings when stock is low based on thresholds you set. Never run out of critical ingredients.
Batch production
Create base recipes (sauces, broths, doughs) and use them as ingredients in other dishes. Everything is costed automatically.
Real-time margins
Instantly see which dishes are more profitable and which are below the target margin.
POS Integration
The only solution on the market with costing integrated into the POS. Each sale automatically deducts stock.
Watch demo in action
Discover how Food&Service automates inventory control, costing, and much more in this 9-minute video.
The only solution with costing integrated into the POS
Food&Service is the only software that directly connects your food costing with the point of sale. Each dish sold automatically deducts ingredients from inventory and updates your margins in real-time.
FAQ
Frequently asked questions about food costing
What is food costing in hospitality?
Food costing is a technical sheet detailing all ingredients of a dish with their quantities, gross and net weights, shrinkage, and costs. It allows you to calculate the exact production cost of each recipe and set profitable sales prices.
How do you calculate the cost of a dish?
You add the costs of all ingredients (applying the price per kg to the net weight used), add indirect costs like oils and spices, and divide by the number of portions the recipe produces.
What margin percentage is recommended in hospitality?
The ideal food cost (raw material cost over sales price) is between 25% and 35%, which equates to a margin of 65% to 75%. It varies by establishment: fine dining may have 30-35% food cost, while fast food is usually around 25-28%.
How often should I update my food costing?
At least once a month. Ideally, update them every time you receive new supplier invoices or when there are significant changes in market prices. With software like Food&Service, this is done automatically.
What is shrinkage and how is it calculated?
Shrinkage is the difference between gross weight (what you buy) and net weight (what you actually use) of an ingredient. It's expressed as a percentage: Shrinkage = ((Gross weight - Net weight) / Gross weight) × 100. For example, a 200g potato that weighs 160g after peeling has 20% shrinkage.
How does food costing affect my restaurant's profitability?
Good costing allows you to: set prices that guarantee profits, identify unprofitable dishes to remove or reformulate, negotiate better with suppliers knowing your real consumption, and reduce waste by controlling shrinkage.
What software should I use for food costing?
There are several options: Excel (basic but manual), specialized costing software, or integrated solutions like Food&Service that connect costing with POS, inventory, and billing. POS integration is key to automating control.
What is the difference between gross weight and net weight?
Gross weight is the ingredient's weight as you receive it from the supplier (with skin, bones, non-edible parts). Net weight is what actually remains after cleaning, peeling, and preparing the ingredient for kitchen use.
Keep reading
More articles to get the most out of your hospitality business
Stop losing money with manual costing
Food&Service automates cost control with AI, OCR, and the market's only real POS integration. Discover how much you can save.
All this included:
Automatic costing with AI
OCR for supplier invoices
Customizable stock alerts
Batch production management
Real-time margins
Integrated with POS and billing
Last update: January 2026
Written by the Food&Service team