What is COGS for a restaurant kitchen?

In March, a restaurant's food cost comes out at 24 per cent, and the owner congratulates the chef. In April, it is 38 per cent, and the owner wants to know what went wrong. Nothing did. A large delivery arrived on the last day of March but its invoice was dated the first of April, and the stock count in March was done two days before the month ended. The kitchen's real food cost was about 31 per cent in both months. The figures were wrong because the dates were.

What is COGS? It stands for cost of goods sold: the cost of the food and drink a venue actually used to make the dishes and drinks it sold in a period. For a restaurant kitchen, it is the number behind the food cost percentage, one of the most watched figures in the business. It is simple to calculate and easy to get wrong, almost always for the same few reasons.

This guide covers what COGS is, the formula, a worked month, how it becomes the food cost percentage, how stock is valued, the date errors that distort it and how to make the figure reliable every month. Every venue and figure in it is an example.

Cost of goods sold is the cost of the stock used up in making what was sold. For a kitchen, that means the ingredients that went into the dishes, plus the ingredients lost along the way to waste, spoilage and mistakes. It does not include labour, rent or energy, which are other costs.

COGS is usually worked out for food and for drink separately, because their costs and their margins behave very differently. Our guide to cost of goods sold for restaurants, explained covers the wider picture.

The formula for a period, usually a week or a month, is simple. Take the value of the stock at the start of the period, the opening stock. Add the value of everything bought during the period, the purchases. Subtract the value of the stock left at the end, the closing stock. The result is the cost of the stock used: the COGS.

In words: what you had, plus what you bought, minus what you have left, is what you used. Every figure in the formula must cover exactly the same period, which is where most of the errors come from.

Opening and closing stock are the two stock counts that bracket the period. The closing stock of one month is the opening stock of the next, so a count at each month's end gives both figures.

The counts must be done at the same point each time: at the close of business on the last day of the period, or before opening on the first day of the next, but consistently. A count done two days early leaves two days of use in the wrong month.

Purchases are the cost of everything that arrived during the period: the food and drink deliveries, at the prices on the invoices, less any credits for returns or short deliveries. They should be recorded by the date the goods arrived, not the date the invoice was issued or paid.

The difference matters at the edges of the month. A delivery that arrived on the thirty-first belongs in that month, whatever date the supplier put on the invoice.

Take an invented kitchen. Its food stock at the start of the month is valued at 8,500.00. During the month it buys food worth 22,000.00, after credits. At the end of the month, its food stock is valued at 9,200.00.

The food COGS is 8,500.00 plus 22,000.00 minus 9,200.00: 21,300.00. That is the cost of the food the kitchen used during the month, including whatever was wasted along the way.

The food cost percentage is the food COGS divided by the food sales for the same period. If the kitchen in the example sold 70,000.00 of food, before tax, its food cost percentage was 21,300.00 divided by 70,000.00: about 30 per cent.

That figure is the one most owners watch. It only means something if the COGS and the sales cover exactly the same period, and the sales are the food sales alone. Our guide to how to calculate food cost percentage step by step covers the method in detail.

There is more than one food cost. The figure from COGS is the actual food cost: what the kitchen really used. The theoretical food cost is what it should have used, from the recipes and the dishes sold. The difference between them is the variance, the food lost to waste, over-portioning, mistakes and theft.

Our guide to what food cost is, and which one you mean covers the difference. Knowing both is how a kitchen finds where its money goes.

Stock valuation is how the stock is given a value at each count. Most kitchens value stock at cost: what they paid for it. When prices change during the month, the venue must choose which price to use: the most recent price, the average price or the price of the oldest stock still on the shelf.

Choose one method and keep to it. Changing the method from month to month moves the COGS for reasons that have nothing to do with how the kitchen works.

The counts must be accurate. Count everything in the same units the invoices use, or convert carefully; count every storage area, including the bar, the cellar and the dry store; and count part-used items, such as an open case or a half-full container, consistently.

Our guide to how to run a restaurant stock count properly covers the method. A careless count makes the COGS wrong, however carefully the purchases are recorded.

Most COGS errors are date errors. The count is done on a different day from the period end. A delivery's invoice is dated in the next month and recorded there. A credit note for a short delivery arrives weeks later and is put in the wrong month. Stock transferred to another venue at the end of the month is counted in neither or both.

Each error moves cost from one month to another. The total over a year may be right, but each month's figure is wrong, and decisions made on monthly figures are made on bad information.

The most common error is the delivery at the month's end. A large order arrives on the last day, the stock is counted that night and includes it, but the invoice is recorded in the next month. The current month's COGS looks low, because the closing stock includes food that was never added to the purchases; the next month's looks high.

Fix it by recording every delivery by the date it arrived, checked against the delivery notes, whatever the invoice says.

Credits for returned or short deliveries reduce the purchases. If they are not recorded, or recorded in the wrong month, the COGS is overstated in one month and understated in another.

Record credits against the month of the delivery they relate to, and chase missing credit notes. A credit agreed on the phone and never received is a cost the kitchen is paying for food it did not get.

In a group, stock moves between venues: from a central kitchen, or from one venue to another when one runs short. Each transfer must be recorded as a purchase for the venue receiving it and a reduction for the one sending it, at the same value and on the same date.

Unrecorded transfers make one venue's COGS look too low and the other's too high. Our guide to running a central kitchen for three venues covers how to price and record them.

Food used for staff meals, for tastings, for events given free or for the venue's own use is part of the stock used, but it did not produce sales. If it is left inside the COGS, the food cost percentage rises, and nobody can see why.

Record it separately, with an estimate of its cost, and take it out of the COGS used for the food cost percentage. The kitchen's true cost against its sales is then visible, and the staff meals are a known cost of their own.

Many venues work out COGS monthly, with a stock count at each month's end. Some, especially larger kitchens or those with tight margins, do it weekly. Weekly figures catch problems sooner, but they need a weekly count and careful dates.

Choose the frequency the venue can sustain accurately. A monthly figure that is right is more useful than a weekly one that is wrong.

COGS changes through the year as menus, prices and the trade change. A rise in the food cost percentage when supplier prices rise, and before the menu prices follow, is expected. A rise with no change in prices points to waste, portions or theft.

Read the figure as a trend, month by month, beside the reasons: supplier price changes, menu changes, the busy and quiet months. One month's jump means little until it is explained.

COGS is half of prime cost: the cost of goods sold plus the cost of labour. Together, they are the largest costs most restaurants have, and many owners watch prime cost as their single most important number.

Our guide to what prime cost is in a restaurant covers it. Getting the COGS right is the first step to getting the prime cost right.

Drinks have their own COGS, worked out the same way: opening drinks stock, plus drinks purchases, minus closing drinks stock. Divided by drinks sales, it gives the beverage cost percentage, which is usually lower than the food cost but varies widely between beer, wine, spirits and soft drinks.

Keep food and drink apart throughout: separate counts, separate purchases and separate sales. A single combined figure hides problems in either.

COGS tells the venue whether its menu prices still work. If the food cost percentage rises because supplier prices have gone up, the menu prices may need to follow, or the dishes may need to change.

Review the food cost percentage alongside supplier price changes every month. A rise caught in one month can be answered with a small price change; a rise ignored for six months needs a large one.

A new venue's COGS is often unreliable in the first months: the opening stock is large, the menu is still settling and the kitchen is learning its waste. Expect the figures to move, and do not draw firm conclusions from the first month or two.

Get the process right from the start, though: the count at the same point each month, purchases by delivery date and credits in the right month. Good habits in the first month make the third month's figure trustworthy.

A food cost percentage that rises without a reason is a signal. Work through the possibilities: supplier prices, portion sizes, waste, a change in the dishes guests choose, a count that was wrong and, last, theft.

Comparing the actual food cost with the theoretical one, from the recipes and the dishes sold, narrows the search. A large gap points to waste, portions or loss; a small gap with a high cost points to prices.

The accountant uses the same figures for the accounts: the stock values at each period end and the purchases. Agree with them how stock is counted and valued, and how purchases are dated, so the kitchen's food cost and the accounts tell the same story.

When the two disagree, the cause is almost always a date or a valuation difference. Sorting it out once saves an argument every month.

Even venues that calculate COGS monthly can watch it weekly in a lighter way: the week's purchases against the week's food sales. The figure is rough, because the stock level changes, but a week with purchases far above the usual share of sales is worth a question.

The monthly figure, with proper counts, remains the one to trust. The weekly glance is an early warning.

In practice, the opening and closing stock counts are the hardest part of COGS. They take time, they happen at the end of a long day and they are easy to rush. A count done in a hurry, with half the dry store estimated, makes the figure meaningless.

Plan the count: who counts which area, in what order, with a printed or digital sheet for each. Count in pairs where possible, one counting and one recording, so the figures are checked as they are taken.

Count every item in the unit it is bought and costed in. If cheese is bought by the kilo, count it by the kilo; if bottles are bought by the case, decide whether to count cases or bottles and keep to it.

A count that mixes units, kilos on one line and packs on the next, is easy to value wrongly. A sheet that states the unit beside every item removes the guesswork.

Part-used items, an open bag of flour, a half-used container of sauce, a cut wheel of cheese, are the easiest to count inconsistently. Decide how they are counted: weighed, estimated to the nearest quarter or counted as full or empty, and use the same rule every time.

A small inconsistency on many part-used items can move the closing stock, and the COGS, by a surprising amount.

Prepared items in the fridge, stocks, sauces, prepped vegetables, have a value too. Many kitchens leave them out of the count because they are hard to value, which understates the closing stock and overstates the COGS.

Value them simply, at the cost of their main ingredients, and include them consistently. The figure will not be perfect, but it will be the same every month.

Months are not equal. A month with five weekends sells more than one with four, and a month with a holiday may sell more or less than usual. The food cost percentage allows for that, because it divides by sales, but the COGS itself will rise and fall with the trade.

Compare the percentage from month to month, not the COGS alone. A higher COGS in a busier month is expected; a higher percentage is the figure that needs a reason.

Give one person responsibility for the monthly COGS: usually the head chef for the food and the bar manager for the drinks, with the manager or the accountant checking the dates. A figure that belongs to nobody is a figure nobody fixes when it looks wrong.

The kitchen in the opening counted its stock two days before the end of March and recorded a large delivery on the last day of March in April, because the invoice was dated the first of April. March's COGS came out low and April's high: 24 per cent and 38 per cent.

The owner moves the count to the close of business on the last day of each month, and records deliveries by the date they arrived, from the delivery notes. Recalculated with the right dates, both months come out at about 31 per cent, and from then on the monthly figure moves only when something in the kitchen really changes.

servearound does not hold stock, purchases, counts or recipe costs, so COGS is worked out in your own stock records or accounts; inventory tracking is coming. What it holds is the sales side of the food cost percentage.

Payment analytics show what was collected for any date range, the menu report shows units sold, revenue and share of sales for every dish and category over the same dates, so food sales can be read for exactly the period the stock counts cover, and bills for a date range can be downloaded as a CSV. See Analytics.

The cost of the stock used to make what was sold in a period.

Opening stock, plus purchases, minus closing stock.

Food COGS divided by food sales for the same period.

Usually because of date errors: counts, deliveries, credits or transfers in the wrong period.

At cost, by one method used consistently.

Yes. Their costs and margins behave differently.

Record them separately and take them out of the COGS used for the food cost.

Whichever the venue can do accurately. Monthly is common.

What is COGS? Cost of goods sold is the cost of the stock used to make what was sold: opening stock, plus purchases, minus closing stock, for exactly the same period. Divided by food sales, it becomes the food cost percentage, the figure most owners watch.

Count opening and closing stock at the same point every period, record purchases by delivery date, place credits and transfers in the right month and keep staff meals separate. Choose one stock valuation method and keep to it, and the monthly figure will move only when something in the kitchen really changes.