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Why Every Food Business Needs to Track Cost of Goods Sold (And How to Do It)

🧾 Business Operations · By Fincaly Team · · 8 min read

Smoked meat and peppers at a street food stall

Food business cost of goods sold, often shortened to COGS, is the direct cost of everything you make and sell: ingredients, packaging and the labour that goes straight into production. Tracking it each month, as a percentage of sales, shows whether your pricing and purchasing actually leave you a profit.

A restaurant, bakery, caterer or food seller can do great volume and still struggle if ingredient and production costs are not managed. Margins are thin and prices change often, so this is the most important number for any food business owner, and many do not track it correctly, or at all.

Food business cost of goods sold: what counts

COGS includes:

  • Raw ingredients, including those wasted or spoiled
  • Packaging such as takeaway packs, bags, foil and labels
  • Direct production labour, such as cooks and bakers
  • Cooking fuel, such as gas or charcoal, if you track it per batch

It does not include rent, shop electricity, marketing, delivery to customers or management salaries. Those are operating costs. COGS is what it costs to make what you sell.

The food cost percentage

Food cost percentage = COGS ÷ food sales × 100.

Example: in a month you sell ₦2,000,000 of food. Ingredients, packaging and direct labour cost ₦760,000. Your food cost percentage is 38%.

Many food businesses aim for somewhere around 28 to 35%, but the right figure depends on your menu, prices and kind of business, so treat any benchmark as a starting point. What matters most is knowing your own number and whether it is rising. If it is climbing, you are earning less on every plate.

The most common COGS mistakes

  1. Ignoring waste and spoilage. Burnt batches, leftovers and spoiled items are real costs.
  2. Using estimates instead of actual costs. Prices at the market change weekly.
  3. Not updating costs when suppliers change. An old recipe cost makes your margin look better than it is.
  4. Forgetting packaging. Containers and bags add up on takeaway orders.
  5. Leaving out your own labour. If you cook, include a fair wage.
  6. Not tracking portion sizes. Slightly bigger portions can wipe out your profit.

How to cost each dish

  1. List every ingredient in the recipe with the exact quantity used.
  2. Price each one at today's cost.
  3. Divide by the number of portions to get the cost per portion.
  4. Add packaging and direct labour per portion.
  5. Divide by the selling price to get the food cost percentage for that dish.

Example: a pot of jollof rice costs ₦38,000 in ingredients, ₦3,000 in gas, ₦6,000 in packaging and ₦4,000 in helper pay, ₦51,000 in total, and makes 20 portions. Cost per portion is ₦2,550. At a selling price of ₦4,500 the dish has a food cost of 57% on direct costs, which is high. You can see straight away that something needs to change: price, portion size or ingredient costs.

How to track COGS each month

  • Record opening stock, purchases and closing stock. COGS = opening stock + purchases - closing stock.
  • Count your stock at the same time each month.
  • Compare COGS with sales to get the percentage.
  • Compare with last month and note any change.

Pair this with pricing guidance for Nigerian food vendors and how to price products for profit.

A simple weekly food-cost routine

Once a week, take fifteen minutes to:

  1. Write down what you spent on ingredients and packaging this week
  2. Write down your food sales for the same week
  3. Divide spending by sales to get a weekly food cost percentage
  4. Compare it with the previous week and with your target
  5. Check your three most expensive ingredients against current market prices

A weekly check catches a cost jump in days, not at month end. If tomatoes, oil or flour prices double, you will know quickly enough to adjust portions or prices.

Which dishes deserve a place on the menu?

Rank each dish by how much profit it brings, not just how often it sells. A dish that sells a lot at a thin margin may earn less than a slower dish with a healthy margin. Keep high-profit, popular dishes visible. Rework or remove dishes that sell little and earn little. Small changes, such as a smaller portion or a cheaper side, can move a dish from loss to profit.

Ways to lower food costs

  • Buy from more than one supplier and compare prices
  • Standardise recipes and portion sizes
  • Cut waste by planning batches around demand
  • Use ingredients across several dishes
  • Review the menu and remove low-margin dishes
  • Adjust prices when costs change. See how to raise prices without losing customers.

How Fincaly helps food business owners track COGS

Fincaly's Unit Economics feature lets you log each product with its production cost and selling price. It calculates the margin per item, flags poor performers and shows total COGS across your range for any month. With the Financial Health feature, you can see what share of revenue goes on food costs and what goes on operating costs.

Fincaly feature: Unit Economics. Log product costs, track margins per item, and see total COGS at a glance. Explore Unit Economics

Track your food costs and margins product by product Start your 3-day free trial →

Next steps

In the food business, profit is made or lost in the kitchen before a customer walks in. Cost your top five dishes this week, calculate your food cost percentage, and fix the highest one first.

Cover photo by Ben Iwara on Unsplash.

Frequently asked questions

What is cost of goods sold in a food business?

It is the direct cost of making what you sell: ingredients, packaging and direct production labour. It excludes rent, marketing and other operating costs.

How do I calculate food cost percentage?

Divide your cost of goods sold by your food sales and multiply by 100.

How often should I update my recipe costs?

Whenever a major ingredient price changes, and at least monthly for your main dishes.

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