6.3 A practical example of food cost analysis for four dishes

To bring the concepts we have discussed to life, we will examine four dishes in which calculations of food cost, service cost, gross margin and margin percentage are demonstrated.

1. Pasta Carbonara

The ingredient cost is ISK 630, representing an average of ingredients such as pasta, eggs and bacon based on daily purchasing. The service cost of ISK 200 covers the chef's labour and energy costs, calculated as an allocation from total labour and utility expenditure. Total cost is therefore ISK 830 against a selling price of ISK 2,100, yielding a food cost percentage of 39.5% and a gross margin of ISK 1,270 — or 60.5%. This calculation shows that Carbonara consumes a significant share of its selling price in ingredients, exceeding the recommended food cost target of 30–35%, yet the 60.5% margin still provides room to cover fixed overheads.

2. Lamb Cutlets

Ingredient cost is ISK 1,650 due to premium meat and high-quality produce, with a service cost of ISK 300. Total cost is ISK 1,950 against a selling price of ISK 4,100, giving a food cost percentage of 47.6% and a gross margin of ISK 2,150 — or 52.4%. Although the margin percentage of Lamb Cutlets is lower than that of Pasta Carbonara, each portion generates nearly ISK 2,150 in gross margin. Lamb offers a higher revenue contribution but pricing must be managed carefully to meet food cost targets.

3. Vegetable Lasagna

Ingredient cost is ISK 520 due to lower-cost vegetables and dairy products, with a service cost of ISK 180. Total cost is ISK 700 against a selling price of ISK 1,900, giving a food cost percentage of 36.8% and a gross margin of ISK 1,200 — or 63.2%. This example demonstrates how menu choices built around lower-cost ingredients can reduce food cost, improve margin percentage and make a dish a cornerstone of financially sustainable operations.

4. Fish Cakes

Ingredient cost is ISK 780 (fish, filling, seasoning) and service cost is ISK 220. Total cost is ISK 1,000 against a selling price of ISK 2,600, giving a food cost percentage of 38.5% and a gross margin of ISK 1,600 — or 61.5%. Fish Cakes sit close to food cost benchmarks and their margin percentage is strong, positioning them well on the menu.

By examining these four dishes, operators can compare items by gross margin and ingredient cost, identify where pricing adjustments are needed and make informed decisions about inventory management and menu restructuring to maximise profitability.

Actions Following Analysis:

• Review pricing on dishes exceeding 40% food cost, such as Pasta Carbonara and Lamb Cutlets.
• Explore local ingredient alternatives to reduce raw material costs.
• Use continuous POS system updates to obtain real-time data on food cost movements and gross margin.

Profitable restaurants chase contribution margin