What Is COGS in a Restaurant?

COGS is one of the first numbers your accountant, your landlord, or a lender will ask about. It is also one of the easiest to calculate once you know where each piece comes from.

Here's what you'll learn:

• What COGS means in a restaurant
• How to calculate it
• What belongs in COGS and what doesn't
• Why an accurate inventory count matters so much

What Is COGS?

COGS (cost of goods sold) is the cost of the product you used to make what you sold during a set period. In a restaurant, that means every ingredient and beverage that went out to guests.

It is not the same as what you spent on purchases. Some of what you bought this week is still sitting on your shelves, and some of what you sold came from stock you bought last week. COGS sorts that out by looking at what you started with, what came in, and what was left.

How to Calculate COGS

Use this formula for any period, whether that's a week or a month:

COGS = Beginning Inventory + Purchases − Ending Inventory

• Beginning inventory is the dollar value of everything on hand at the start of the period. It should match the ending inventory from your last count.
• Purchases are everything you received during the period, at the price you paid.
• Ending inventory is the dollar value of everything on hand at the end of the period, based on a fresh count.

Example: you start the month with $12,000 in inventory, receive $8,000 in deliveries, and end the month with $11,000 on hand. Your COGS is $9,000 ($12,000 + $8,000 − $11,000).

What Belongs in COGS (and What Doesn't)

COGS should only include the cost of what you sell. Keep it clean so the number tells you something useful.

Include:

• Kitchen ingredients
• Beer, wine, liquor, and non-alcoholic beverages

Your call: to-go packaging. Containers, cups, and lids can go either way.

• Takeout-heavy and quick-service restaurants often count packaging in COGS, since it rises and falls with sales.
• Full-service restaurants usually treat it as an operating supply, like napkins.
• One item, one place. The same small container might hold takeout dressing one hour and a guest's leftovers the next. Put each packaging item entirely in COGS or entirely in supplies, based on its main use, instead of trying to split it.

Whichever you choose, keep it the same every period, or COGS will jump when nothing has changed. If packaging is in COGS, count it by the case or sleeve, not by the piece.

Leave out:

• Labor, including kitchen and bar wages
• Cleaning and chemical supplies
• Smallwares, equipment, and repairs
• Rent, utilities, and marketing

Labor is the one new owners most often ask about. It is a major cost, but it sits in its own line. COGS plus labor together is called prime cost, a common benchmark for overall operating health.

Why Your Ending Count Drives the Whole Number

Every dollar of error in your ending inventory changes your COGS by the same dollar. That makes your count the most sensitive part of the formula.

• Overcounting makes ending inventory look larger, so COGS looks lower and your margins look better than they really are.
• Undercounting does the opposite: COGS looks inflated and you may chase a cost problem that does not exist.
• Skipping a storage area (a back freezer, a liquor cage, an off-site unit) is one of the most common ways this happens.

Count everything, in the same order, at the same point in the period every time. Consistency matters as much as precision.

How COGS Connects to Food Cost Percentage

COGS on its own is a dollar amount. To compare it across weeks, months, or locations, turn it into a percentage of sales.

Food Cost % = COGS ÷ Sales × 100

For example, $9,000 in COGS against $30,000 in sales is a 30% food cost. That percentage is what most owners track week to week, since it adjusts for busy and slow periods automatically.

Track COGS by Category

One combined COGS number can hide a problem in a single area. Split it out wherever you can.

• Food and beverage at a minimum.
• Liquor, beer, and wine separately if you run a bar program, since each has very different margins.
• The formula works the same way for each category. You just need beginning inventory, purchases, and ending inventory recorded per category.

Key Takeaways

• COGS is the cost of the product you used to make what you sold in a given period.
• Formula: Beginning Inventory + Purchases − Ending Inventory.
• Include ingredients and beverages. Leave out labor, supplies, and overhead.
• To-go packaging can go either way. Pick one approach and keep it the same every period.
• Your ending count drives the whole number, so count consistently.
• Divide COGS by sales to get your food cost percentage, and track it by category when you can.

Once you know your COGS, the natural next step is checking whether that number matches what your recipes say you should be spending.