A Beginner's Guide to the Food Cost Formula for Coffee Shops

A passion for coffee. 

An entrepreneurial spirit. 

A craving to try something new. 

There are infinite, unique reasons a person might decide to open a coffee shop. But, no matter your “why,” every coffee shop needs the same thing to keep the doors open (and the coffee machines running): 

A profitable menu. 

And that’s where the food cost formula comes into play. 

In this blog, we’ll catch you up to speed on all things “food cost formula,” including:

• What “food cost” actually means (and why it matters)
• What the food cost formula is and how to use it (with an example)
• The ideal food cost percentage for coffee shops (and how to calculate yours) 
• Five ways your coffee shop can benefit from using and applying the food cost formula 

And, if you stick around to the very end, we’ve also included a FREE downloadable food cost percentage calculator to help you figure out your own coffee shop's food cost percentage.

Let’s get started! 

What is a Food Cost Percentage (and Why Does It Matter)?

Before digging too deep into the food cost formula, let’s answer a simpler question, first:

What does “food cost” actually mean?

Well, it’s pretty much exactly what it sounds like! “Food cost” is the money your coffee shop spends on the ingredients and materials required for your menu items, from the cost of raw ingredients (like flour and eggs) to pre-packaged items (like caramel sauce and oat milk). 

Now, keeping that definition in mind, we’ll move on to our next question:

What is a “food cost percentage”? 

Put simply, a food cost percentage is a ratio between the money your coffee shop spends on its menu items (the “food cost” we just talked about) and the money you earn on food (i.e. food sales). This is an incredibly valuable calculation because it can offer your coffee shop insights on overall menu profitability, the profitability of specific menu items, and areas you may want to reduce (or increase) spending. 

What is the Ideal Food Cost Percentage for Coffee Shops?

So, now we’re all on the same page about what a food cost percentage is… but what are you supposed to do with it? Is there such a thing as a “good” or “bad” food cost percentage?

Let’s start with the first question — what you can do with your coffee shop’s food cost percentage is assess (and adjust!) your operation’s profitability and bottom line based on what your percentage tells you. 

Maybe you’ll notice that your coffee shop’s food sales far exceed your food costs, and you have space financially to experiment with a new menu item or try a variation of a crowd favorite. Or, maybe you’ll notice the opposite, and reduce the number of menu items you’re offering or tweak a specific recipe that costs a lot. 

Regardless of what your coffee shop’s food costs reveal, you now have actual data showing how much your restaurant is spending vs. making on your menu items, and that’s valuable information for any owner or operator to have! 

Now, to answer your second question — no, there is no “good” or “bad” food cost percentage. 

While most coffee shop owners and operators aim for a food cost percentage of 15-25% per item, that range isn’t a hard and fast rule for every coffee shop. The “ideal” food cost percentage for your coffee shop depends on a range of factors, from the items you sell to the market you sell to. The only person who can say what “ideal” looks like for your coffee shop is you! 

Are your menu items as profitable as you think? Check now with Craver’s Food Cost Percentage Calculator.

What is the Food Cost Formula? 

So far in this blog, we’ve established that:

1. “Food cost” is how much your coffee shop spends on menu item ingredients
2. “Food cost percentage” is your coffee shop’s ratio of food spend versus food sales, and
3. This data is invaluable for assessing, maintaining, and/or improving your coffee shop’s probability. 

Now, how do you actually calculate that food cost percentage? 

The food cost formula. 

At its core, the food cost formula is a fairly simple concept; it uses your coffee shop’s food spend and sales to calculate the food cost percentage (as outlined in the previous section). And, depending on what you’re hoping to explore with your food cost percentage, there are two different food cost formulas.

The first food cost formula focuses on your coffee shop’s food cost percentage for individual menu items.

The individual food cost formula is ideal for day-to-day operations, providing actionable, profit-focused insights tied directly to revenue, customer choices, and individual menu item success (or lack thereof). 

The second food cost formula focuses on your coffee shop’s overall food cost percentage, analyzing your menu as a whole (vs. individual items).

The overall food cost formula is a great tool to use alongside the individual formula, especially for higher-level assessments of your coffee shop’s financial health (like annual financial reviews, for example). 

We’ll focus on the “day-to-day” individual food cost formula for the remainder of the blog,  starting with an example from our (fictional) coffee shop, Craver Coffee.

Food Cost Formula Example: Craver Coffee

To demonstrate what a food cost formula calculation actually looks like, we’ll take you through an example calculation for our (fictional) cafe, Craver Coffee. 

First, we’ll decide what food cost percentage we’re interested in; overall or by menu item. 

In this case, Craver Coffee is interested in the food cost percentage for one item — the Craver Cappuccino.

(As a reminder, that means we’ll be using the formula below.)

To use the individual food cost formula, we’ll only need two things:

• Cost of Ingredients for the Craver Cappuccino — $3.50
• Menu Price of the Craver Cappuccino — $7.50

Then, we’ll slot our values into the appropriate section of the food cost formula. 

Food Cost Percentage = (Cost of Ingredients/Menu Price) x 100 

Food Cost Percentage = ($3.50/$7.50) x 100 

Food Cost Percentage = 46.66%

That means the food cost percentage for our “Craver Cappuccino” is ~47% (which is well above the ideal range for the coffee shop industry — go fictional team, go!).

Take the guesswork (and manual math) out of menu profitability with Craver’s Food Cost Percentage Calculator. 

5 Ways to Use the Food Cost Formula

At this point in the blog, you’re equipped with the power of the food cost formula and are more than ready to make some profitability calculations for your coffee shop. 

Here are five different ways to start using the food cost formula (and leveraging the insights it provides!). 

1 — Maximize profits with well-priced menu items

Use the food cost formula to check the prices of your menu items, seeing how they compare to the industry’s typical food cost percentage and the goals you’ve set for your own coffee shop. 

Pro tip → When pricing menu items like coffee, remember that most guests won’t pay more than $5 for a cuppa! 

2 — Get ahead of seasonal shifts to stabilize costs

Staying on top of your coffee shop’s food costs (and percentages) with regular tracking means it’s easy to notice — and get ahead of! — predictable fluctuations like seasonal availability. 

Pro tip → Consider creating seasonal menu items to take advantage of lower-priced, in-season ingredients! 

3 — Drive sales by featuring fan favorites

Compare profits from your coffee shop’s most popular menu items, using food cost percentages to explore which items may be worth ramping up production on (and which ones are falling flat). 

Pro tip → Prioritize menu items that are high-demand/low-cost. Don’t be afraid to change or ditch the underperformers! 

4 — Protect your bottom line from rising costs

Staying up-to-date on your coffee shop’s food costs can help you respond to external financial factors (like inflation) quickly and efficiently, making sure your bottom line is safe and sound.  

Pro tip → Monitor industry responses to inflation to determine when to raise your own coffee shop’s prices. 

5 — Spend smarter by reducing waste

Keep an eye on fluctuations in your food cost percentage. If your food cost hasn’t increased but your percentage has, you may be looking at a different issue with food waste or portion control! 

Pro tip → Make note of which menu items fluctuate in food cost percentages so you can see if waste is the culprit.  

Craver’s Food Cost Percentage Calculator

Feeling motivated to try the food cost formula with your coffee shop’s numbers? 

We can help with that.

With Craver’s free, downloadable Food Cost Percentage Calculator, you can explore all the insights the food cost formula has to offer without any of the manual math. 

Just download the food cost percentage calculator, punch in your numbers, and voila! Your coffee shop’s food cost percentages are calculated faster than you can write out the formula on paper.