COGS (Cost of Goods Sold)

COGS captures every ingredient cost that goes into producing what a restaurant sells. It is not the cost of what you ordered — it is the cost of what you actually used.

The formula:

• Beginning inventory — the dollar value of all food and beverage stock on hand at the start of the period.
• Purchases — everything received from suppliers during the period.
• Ending inventory — the dollar value of stock remaining at period close.

The difference is what was consumed: some of it sold, some wasted, some stolen, some used for staff meals or comps.

What belongs in COGS:

• Raw food ingredients (proteins, produce, dry goods, dairy)
• Beverages (alcohol, soft drinks, juices, coffee beans)
• Garnishes and consumable mise en place (herbs, oils used in plating)

What does NOT belong in COGS:

• Labor (even kitchen labor — that is a separate prime cost component)
• Packaging, takeout containers, or napkins (operating supplies)
• Equipment, utilities, or rent

Keeping these lines clean is important: if labor or packaging slips into your COGS calculation, your food cost percentage will look worse than it is and you will chase the wrong problem.

Gross profit is simply Revenue − COGS. Every other expense — rent, wages, marketing, insurance — comes out of that gross profit. If COGS is too high, there is not enough margin left to cover overheads and generate a profit, no matter how busy the dining room is.

The food cost percentage is COGS expressed as a share of revenue:

Most full-service restaurants target a combined food-and-beverage cost somewhere in the 28–35% range, though this varies significantly by concept, price point, and cuisine. A fine-dining kitchen running luxury proteins will accept a higher food cost because menu prices carry wider absolute margins; a high-volume fast-casual operator needs it tighter.

Why COGS diverges from your purchase invoices:

Many operators confuse purchases with COGS. If you bought a case of salmon this week but still have half of it on Friday, your COGS for the week is only the half you used. Tracking actual consumption — not just buying patterns — is what makes the number meaningful.

What inflates COGS unnecessarily:

• Waste and spoilage — ordering too much, poor rotation (FIFO), improper storage
• Portioning drift — line cooks serving heavier portions than the recipe specifies
• Theft or unrecorded comps — stock disappears but no corresponding sale was rung
• Vendor price increases not yet reflected in menu prices
• Menu mix shifts — selling more low-margin items than projected

Tracking COGS weekly (rather than monthly) surfaces these problems while they are still correctable.

Suppose a restaurant runs the following numbers for a single month:

| Line | Amount | |---|---| | Beginning inventory | 8,400 | | Purchases received | 22,600 | | Ending inventory | 7,200 | | COGS | 23,800 | | Revenue | 74,000 | | Food cost % | 32.2% |

The owner then notices that the ending inventory is lower than expected. A quick check reveals two things: a new prep cook has been over-portioning a signature protein dish, and a batch of herbs spoiled because of a refrigeration issue. Together, these account for roughly 1,200 of unplanned usage. Fixing portioning standards and repairing the fridge would bring COGS closer to 22,600 — dropping food cost % to around 30.5% and adding meaningful dollars back to gross profit without changing a single menu price.

Practical steps to manage COGS:

1. Count inventory on a consistent schedule — weekly for high-value categories, monthly for stable dry goods.
2. Reconcile actual COGS against your theoretical COGS (what the POS says you should have used based on sales and recipes). The gap is your variance.
3. Review vendor invoices against purchase orders to catch price creep early.
4. Cost every recipe formally and update it whenever an ingredient price changes significantly.
5. Track food cost % by category (meat, seafood, produce, alcohol) so you can pinpoint which area is drifting. Some operators use a platform like Restora 360 to link live menu data to inventory counts and surface variances automatically.