Cost Accounting in Restaurants: Why Controlling COGS Is Key to Survival

In the restaurant world, profits are slim, competition is fierce, and mistakes are costly. One of the biggest killers of restaurant success is out-of-control food costs, also known as Cost of Goods Sold (COGS). Managing COGS through effective cost accounting is what separates profitable restaurants from those struggling to survive.

What Is COGS in Restaurants?

COGS (Cost of Goods Sold) is the total cost of food and beverages used to produce the items you sell. It’s a critical benchmark in restaurant cost accounting because it directly shows how efficiently you turn ingredients into revenue.

Important: COGS should always be measured as a percentage of net sales (gross sales minus taxes and tips). Taxes and tips never belong to the restaurant, so including them in the calculation artificially lowers your COGS percentage.

The Target: 20–25% of Net Sales

Healthy restaurants aim to keep COGS between 20% and 25% of net sales.

• Under 20%: You’re likely maximizing efficiency, but you may risk under-portioning or overpricing if guests feel shortchanged.

• Over 25%: Profits begin to erode quickly. Even a few percentage points over can make the difference between breaking even and closing your doors.

Why High COGS Can Kill a Restaurant

Uncontrolled COGS is a silent killer because the losses often go unnoticed until margins disappear. Common culprits include:

• Portion Creep – staff serving slightly more than recipe standards.

• Waste and Spoilage – poor inventory control leading to expired or unused ingredients.

• Theft and Shrinkage – missing product not accounted for in sales.

• Improper Pricing – menu items priced without accurate recipe costing.

Cost Accounting Tactics to Control COGS

1. Recipe Costing Sheets

   • Break down every menu item by ingredient, portion, and unit cost.

   • Ensure menu pricing covers costs plus profit.

2. Inventory Tracking

   • Conduct weekly or daily counts.

   • Compare actual usage against theoretical usage to catch discrepancies early.

3. Menu Engineering

   • Identify profitable “stars” (high margin, high sales).

   • Eliminate or reprice “dogs” (low margin, low sales).

4. Supplier Management

   • Negotiate pricing on high-volume items.

   • Consider seasonal menus to take advantage of fluctuating ingredient costs.

5. Pair With Labor Analysis

   • True dish profitability includes both food and labor.

   • Use cost accounting to align staffing with sales volume.

Example: The Impact of Just 5%

If your restaurant does $100,000 in net sales per month:

• At 25% COGS, food costs are $25,000.

• At 30% COGS, food costs jump to $30,000.

That 5% difference is $5,000 lost each month—or $60,000 per year. Many restaurants fail for exactly this reason.

Bottom Line: Know Your Numbers

Cost accounting in restaurants isn’t optional—it’s essential. By keeping COGS in the 20–25% range of net sales, owners protect their margins, prevent waste, and build financial resilience.

At Ledger Board, we help restaurants implement cost accounting systems that put them back in control—because in hospitality, what you don’t track will cost you.