Understanding COGS: The metric that matters most

If you only track one number in your restaurant, make it Cost of Goods Sold (COGS). Not revenue, not covers, not even profit. COGS is the metric that determines whether you're making money or slowly bleeding out.

A venue doing $80,000 in monthly sales with a 35% COGS is pocketing $52,000 for labour and overheads. Drop COGS to 30%, and you've just found an extra $4,000. No marketing spend, no price increases. Just better control over what you're buying and using.

What is COGS, exactly?

Cost of Goods Sold is the total cost of all ingredients and consumables that went into the dishes you served during a specific period. It includes food, beverages, and packaging. It does not include labour, rent, or utilities.

Think of it as the raw material cost of what you sold. If you served 100 burgers this week, COGS is the cost of the buns, patties, cheese, lettuce, tomatoes, and boxes they went out in.

How to calculate COGS correctly

The standard formula for calculating COGS over a period (weekly, monthly, or annually):

Example: Let's say you run a café. On 1 October, your inventory was worth $8,000. During October, you purchased $12,000 in ingredients. On 31 October, your inventory was worth $7,500.

COGS = $8,000 + $12,000 − $7,500 = $12,500

That means you used $12,500 worth of ingredients in October. If your sales were $40,000, your COGS percentage is:

COGS % = ($12,500 / $40,000) × 100 = 31.25%

That's your food cost percentage. For every dollar of sales, 31.25 cents went to ingredients.

COGS benchmarks by restaurant type

What's a "good" COGS percentage? It varies by venue type, service style, and menu complexity. Here are industry benchmarks for Australia and similar markets:

• Fast casual / QSR: 28–32%. High volume, lower ingredient costs per dish.
• Casual dining: 30–35%. Balanced menu with moderate complexity.
• Fine dining: 30–35%. Premium ingredients but higher pricing offset costs.
• Cafés: 25–30%. Coffee margins help offset food costs.
• Pubs: 28–33%. Beverage sales (especially beer) lower overall COGS.
• Pizza / pasta: 25–30%. Low-cost base ingredients with high markups.

If your COGS is above these ranges, you're either underpricing, over-portioning, wasting too much, or getting ripped off by suppliers. Possibly all four.

Common mistakes that inflate COGS

Most operators know their COGS is too high. They just don't know why. Here are the usual suspects:

1. Inaccurate inventory counts

Your COGS calculation is only as good as your inventory data. If you're guessing shelf quantities or skipping weekly counts, your numbers are fiction. Most venues undercount closing inventory, which artificially inflates COGS.

2. Not tracking waste properly

Food waste should be recorded separately from COGS, but most venues lump it in. This masks the real problem. If you're throwing out $500/week in spoiled stock, that's $26,000/year. Track it, measure it, fix it.

3. Inconsistent portioning

When your chefs "eyeball" portions instead of weighing them, you're burning money. A 20g difference on a protein might seem small, but multiply it by 500 serves per week and you're giving away thousands in margin.

4. Not negotiating supplier pricing

Supplier pricing changes constantly. If you're not reviewing invoices and comparing quotes, you're leaving money on the table. One operator saved 8% on produce costs just by switching to a weekly fresh supplier and negotiating volume discounts.

5. Menu items with unknown costs

You can't manage what you don't measure. If you don't know the exact cost of every dish, you're flying blind. One popular menu item might be losing money while another prints it. Recipe costing is non-negotiable.

Strategies to improve your COGS

Here's how to bring your COGS down without sacrificing quality:

1. Cost every recipe to the gram

Build a recipe costing sheet for every menu item. Include every ingredient, down to the garnish. Update costs monthly as supplier prices change. This gives you your true plate cost and ideal COGS target.

2. Standardise portions with scales and tools

Buy kitchen scales, portion scoops, and ladles with measured capacities. Train your team to use them on every dish. Consistency in portioning is one of the fastest wins for COGS control.

3. Run weekly variance reports

Compare theoretical COGS (based on POS sales and recipe costs) to actual COGS (from inventory). A variance above 2–3% means something's wrong: theft, waste, or over-portioning. Investigate immediately.

4. Optimise your menu mix

Use menu engineering to promote high-margin items and phase out low-margin dogs. If a dish has 40% COGS and sells poorly, kill it. Replace it with something that costs 28% and has broader appeal.

5. Review supplier pricing quarterly

Set calendar reminders to review supplier invoices and compare quotes. Loyalty is fine, but not at the expense of your margins. Even a 3% saving on your top 20 ingredients adds up fast.

How to track COGS effectively

Tracking COGS manually in spreadsheets is painful, error-prone, and slow. Here's what good COGS tracking looks like:

• Automated inventory: Scan invoices or log stock on a tablet. No manual data entry.
• Real-time costing: Recipe costs update automatically when supplier prices change.
• Weekly reports: See actual vs. theoretical COGS every Monday morning.
• Variance alerts: Get notified when COGS spikes above your target threshold.
• Item-level insights: Drill down to see which ingredients are driving cost increases.

Modern inventory systems (like Equimise) do all of this automatically. No spreadsheets, no calculator, no guesswork. Just clear visibility into where every dollar is going.

Final word: COGS is your profit lever

Revenue growth is hard. You need more customers, better marketing, higher prices. But COGS improvement is internal. It's about systems, discipline, and visibility. You control it completely.

A 3% reduction in COGS can have the same profit impact as a 15% increase in sales. Which is easier: getting 15% more customers, or tightening up portioning and supplier contracts?

Track your COGS weekly. Cost every recipe. Standardise portions. Review suppliers regularly. Do these four things, and you'll be in the top 10% of operators in your market.

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About the author: The Equimise team is dedicated to helping hospitality operators run smarter, waste less, and grow profitably with intelligent back-of-house systems.