What is the difference between theoretical and actual food cost?
Theoretical food cost is what you should spend based on sales and recipe portions. Actual food cost is what you actually used based on inventory and purchases.
6 Fast Food Inventory Metrics That Keep Food Cost in Check
What These Inventory Metrics Do
Fast food inventory metrics help you control food cost by showing where money is being lost. They turn inventory from a "count and order" task into a simple set of signals - what you should be using, what you actually used, and where the gap is. When you track the right numbers each week, you can spot problems early - before they show up as a bad month on your P&L.
These metrics do three main things -
1. They show if your store is using product the way it should. If your recipes, portions, and ringing are consistent, your inventory usage should match your sales. Metrics like theoretical food cost and key item usage tell you what "normal" should look like. When the numbers drift, it's a sign that something changed in operations.
2. They separate ordering problems from usage problems. A lot of owners try to fix food cost by ordering less. That can cause stockouts and rush buying, which can make things worse. Metrics like inventory turnover and days on hand tell you if you're carrying too much or too little. Metrics like variance and waste tell you if you're losing product after it arrives.
3. They point you to a short list of actions. You do not need to review every item every day. These metrics help you focus on the few items and processes that drive most of your cost - usually proteins, cheese, oil, and a few high-volume ingredients.
If you can only do one thing to start, do this - pick a weekly review day and look at the same metrics in the same order every time. Consistency is what makes the numbers useful.
Metric 1. Theoretical Food Cost Percentage
Theoretical food cost is what your food cost should be if every item is portioned correctly, every sale is rung in correctly, and nothing is wasted or missing. It is a baseline. It does not tell you what happened in the kitchen. It tells you what "normal" should look like based on your sales and your standards.
What you need to calculate it
To get theoretical food cost, you need three things -
1. Sales by item (from your POS)
2. Recipe/build standards for each item (how much of each ingredient is used)
3. Ingredient costs (your current item cost from invoices or your item file)
Your system uses that information to estimate expected usage. Example - if you sold 300 burgers, and each burger should use 1 patty, it expects 300 patties used. If each patty costs $1.10, it expects $330 in patty cost for that burger sales mix.
Theoretical food cost matters because it tightens two areas that usually cause food cost to creep up-
1. Recipe accuracy and portions. If your build chart says 1.0 oz of cheese but the line is using 1.3 oz, your actual cost will rise. Theoretical cost gives you a target to compare against so you can see the impact of portion drift.
2. Menu mix changes. If guests start ordering higher-cost items more often, theoretical food cost will rise even if operations are perfect. That's not a "problem," but you need to see it so you can adjust pricing, promos, or labor targets.
What a problem looks like
Theoretical food cost becomes useful when it changes in a way you can't explain. Common signs -
- Your theoretical food cost & rises week over week with no pricing change
- Your theoretical cost is consistently higher than your target even on "good" weeks
- One category (proteins, cheese, oil) becomes more expensive without you noticing
What to do if theoretical cost is high
Start with the simplest checks -
1. Confirm your item costs are current (old costs can hide price increases)
2. Check that recipes/builds match reality (portion tools, build charts, training)
3. Review your menu mix (more premium items sold will raise the theoretical %)
The point of theoretical food cost is simple - it gives you a clean expected number. Once you have that, the next metrics will tell you whether your store is actually performing to that expectation.
Metric 2. Actual Food Cost Percentage
Actual food cost is what you actually used during a period. It includes everything that affects your real inventory use - over-portioning, waste, theft, counting errors, missed transfers, and invoice mistakes. This is the number that shows up in your financials, so it's the one you ultimately need to control.
The simple formula
Most fast food restaurants calculate actual food cost like this -
Actual Food Cost $ = Beginning Inventory + Purchases - Ending Inventory
Then to get the percentage -
Actual Food Cost % = Actual Food Cost $ / Food Sales $
Example (simple) -
Beginning inventory. $12,000
Purchases. $28,000
Ending inventory. $10,000
Food sales. $80,000
Actual Food Cost $ = 12,000 + 28,000 - 10,000 = $30,000
Actual Food Cost % = 30,000 / 80,000 = 37.5%
Actual food cost is a mix of two things -
1. Normal usage based on sales (what you should have used)
2. Everything that went wrong or changed (what you used but didn't sell)
That's why actual food cost alone doesn't tell you the cause. It's an outcome metric. It's still useful, but you need the next metric (variance) to diagnose issues faster.
The most common reasons actual food cost is inaccurate
If your actual food cost looks "off," it's often because inputs are messy. These are the usual causes -
1. Inventory counts are inconsistent
- Counts done on different days/times each period
- Storage areas missed (walk-in, prep cooler, freezer, dry storage, line)
- Units not consistent (case vs each, pounds vs ounces)
2. Invoices don't match what was received
- Price changes not updated
- Short shipments not caught
- Credits not entered or not applied
3. Transfers and waste aren't recorded
- Product moved between stores without documentation
- Waste tracked in a notebook but not entered anywhere
- Employee meals and comps not tracked consistently
How often to calculate actual food cost
- Weekly is best for control, because problems are easier to find while the week is still fresh.
- Period close is still important for accounting, but it's slower and harder to fix issues that already happened.
If you only do actual food cost at the end of the month, you will see problems late. If you do it weekly, you can correct ordering, prep, and portioning before it becomes a big loss.
Metric 3. Food Cost Variance (Theoretical vs. Actual)
Food cost variance is the difference between what you should have spent (theoretical) and what you did spend (actual). This is the metric that tells you if your store is losing product, over-using product, or tracking product incorrectly.
If you track only one thing each week, track variance. It turns "food cost is high" into a clear question- Where did the extra cost come from?
How to calculate variance
You can track variance in dollars and percent.
Variance $ = Actual Food Cost $ - Theoretical Food Cost $
Variance % (of sales) = Variance $ / Food Sales $
Example -
- Theoretical food cost. $28,500
- Actual food cost. $30,000
- Food sales. $80,000
Variance $ = 30,000 - 28,500 = $1,500
Variance % = 1,500 / 80,000 = 1.9%
A positive number means you used more product than expected (or your data is off). A negative number can happen too, but it often points to counting issues, missing invoices, or recipes that are not set correctly.
What causes variance in fast food
Variance usually comes from a small set of root causes. Start with these categories -
1. Portioning and build changes
- Free-pouring sauces
- Heavy hands on cheese
- Larger protein portions
- Wrong scoop sizes or no portion tools used
2. Waste and re-makes
- Over-prep and expired holding
- Incorrect orders that get remade
- Quality rejects during rushes
- Prep mistakes that force rework
3. Ringing and comps
- Items made but not rung
- Wrong buttons used (smaller size rung, larger served)
- Employee meals not recorded correctly
- Promotions not set up right
4. Receiving and invoice issues
- Short shipments not caught
- Wrong prices or missing credits
- Duplicate invoices entered
- Vendor substitutions at higher cost
5. Counting and unit errors
- Counting in the wrong unit (case vs each)
- Missed storage locations
- Inconsistent count method week to week
6. Theft or untracked transfers
- Product leaving the store with no record
- Transfers between stores not documented
A simple way to investigate variance
Do not try to investigate every item. Use a short process -
1. Start with your top cost items. Pick 5-10 items that drive your food cost (example, chicken, beef patties, cheese, frying oil).
2. Check for data problems first. Look for obvious errors - missing invoices, wrong units, missed locations, missing credits.
3. Then check operations. If the data looks clean, focus on portioning, waste, and ringing. Walk the line, watch how items are built, and compare to your standards.
4. Turn the finding into one action
Examples -
- Re-train portion tools on one station
- Adjust prep plan for a specific daypart
- Fix POS buttons or promo setup
- Change receiving checklist to catch shortages
Variance is the metric that turns your inventory system into a control system. Once you know your variance and what drives it, you can keep food cost from drifting month after month.
Metric 4. Inventory Turnover
Inventory turnover tells you how quickly you use what you buy. In fast food, this matters because slow-moving inventory creates three problems- spoilage, waste, and cash tied up on shelves. Even if your food cost percent looks fine, poor turnover can quietly drag down margins.
You can track this as turnover or as days on hand. Days on hand is easier for most operators to use.
Days on hand answers one question -
- If I stop ordering today, how many days can I run on what I have?
If the number is high, you are likely over-ordering or carrying too much "just in case" inventory. If the number is too low, you risk stockouts and emergency purchases (which often cost more).
How to calculate it (simple version)
There are a few ways to calculate days on hand. Here's a simple approach -
1. Find your average daily usage for a category or key item
Example. Weekly usage for chicken = $2,800
Average daily usage = 2,800 / 7 = $400/day
2. Divide your on-hand inventory value by average daily usage
On-hand chicken inventory = $1,600
Days on hand = 1,600 / 400 = 4 days
You can do this by category (proteins, produce, frozen, dry goods) or for high-cost items.
Targets depend on your volume, delivery schedule, and shelf life. But these guidelines are common -
1. Fresh produce - lower days on hand (to reduce spoilage)
2. High-cost proteins - controlled days on hand (to protect cash and shrink risk)
3. Frozen and dry goods - can be higher, but still should match your ordering cadence
A practical rule- your days on hand should align with your delivery schedule plus a small buffer. If you get deliveries twice a week, you usually don't need two weeks of inventory.
Why turnover problems raise food cost
High days on hand increases food cost in indirect ways -
1. More expiration and spoilage. More product sits longer, and some of it gets thrown away.
2. More counting error and "lost" product. Large inventory is harder to control. Mistakes hide in the noise.
3. More untracked usage. When inventory is everywhere, it's harder to spot abnormal use or missing items.
4. More cash tied up. You may be profitable on paper but still feel tight on cash.
What to do when days on hand is too high
Use a simple checklist -
1. Check ordering habits
- Are you ordering to "full shelves" instead of to par?
- Are managers ordering without looking at on-hand?
2. Set par levels by category
- Define min/max for each major group
- Adjust par levels for weekends and promotions
3. Reduce duplicate storage
- Too many open cases in multiple areas leads to waste and bad counts
4. Review slow movers
- If an item is not moving, reduce ordering or remove it from routine orders
Turnover and days on hand give you control over how much inventory you carry. Next, you need to control how much inventory you lose. That's where waste tracking comes in.
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Metric 5. Waste Percentage by Reason
Waste is product you paid for but did not sell. In fast food, waste is one of the fastest ways food cost gets out of control because it often happens in small amounts, all day, every day. Tracking waste in a simple way helps you reduce loss without guessing.
You should track waste in dollars and as a percent of sales, and you should always track the reason.
At minimum, track these fields -
- Date
- Item
- Quantity
- Reason
- Dollar value (or estimated cost)
Common waste reasons that work well in fast food -
- Over-prep / expired holding time
- Quality reject (burnt, undercooked, wrong temp)
- Wrong order / remake
- Damaged in storage / dropped
- Received spoiled / vendor issue
- Training / new employee mistakes
Do not use "other" for everything. If your log is mostly "other," it will not help you.
How to calculate waste
You can do this weekly -
Waste $ = Sum of waste item cost for the week
Waste % = Waste $ / Food Sales $
Example
Weekly waste. $420
Food sales. $80,000
Waste % = 420 / 80,000 = 0.53%
That may sound small, but in fast food margins, half a percent can be the difference between a strong month and a weak one.
What waste tells you that inventory counts don't
Inventory counts and variance tell you there is a problem. Waste tells you what kind of problem.
- High waste from over-prep usually means your prep plan or forecasting is off
- High waste from remakes usually means speed and accuracy are fighting each other
- High waste from quality rejects can point to equipment issues, cook times, or training
- High waste from storage damage can point to organization and FIFO problems
How to use waste tracking without extra work
Make it a short routine -
1. Track waste at the time it happens. If it gets logged later, it won't be accurate.
2. Focus on the top waste items. Each week, look at the top 5 items by waste dollars. That's where your savings are.
3. Look for pattern -
- Same item wasted in the same daypart
- Waste spikes on certain days
- Waste increases with certain shifts or new hires
4. Tie it to one fix
Examples -
- Adjust prep levels by daypart
- Shorten holding times or change batch sizes
- Add a second verification step for order accuracy
- Re-train one station on build and portion tools
Instead of chasing "zero waste," use targets -
- Set a weekly waste target as a percent of sales
- Set item-level targets for high-cost categories
- Watch for sudden changes, not just the average
Waste tracking works best when it is consistent and easy. Once you know what you are wasting, the next step is to control the items that drive most of your food cost. That's what key item variance is for.
Metric 6. Key Item Variance
Key item variance is a focused way to control food cost by tracking the few items that drive most of your inventory dollars. In fast food, you do not need to analyze every SKU to find problems. If you control your top items, you control most of your food cost.
Key items are usually -
- Proteins (chicken, beef patties, bacon)
- Cheese
- Frying oil
- High-volume sauces
- Premium toppings
Pick 5-10 items that make up a large share of your food cost. Keep the list consistent so you can compare week to week.
What you measure
For each key item, you compare expected usage to actual usage.
- Expected usage comes from sales and build standards (how much you should have used based on what you sold).
- Actual usage comes from inventory movement (beginning + received ending, adjusted for transfers if you track them).
The difference is your key item variance.
Key item variance helps you find issues faster because it narrows the search. If chicken variance is high, you do not waste time reviewing paper goods or low-cost items. You focus on the station, the portions, and the handling of that one product.
Common causes of key item variance -
1. Portioning drift (heavy hands, wrong scoop, no scale)
2. Unrecorded waste (drop waste, overcooked product, expired holding)
3. Ringing errors (selling a larger portion but ringing a smaller one)
4. Receiving errors (short shipments, missing credits, wrong units)
5. Count errors (cases vs each, missed storage areas)
6. Untracked transfers or theft
How to use it each week
- Count key items the same day and time each week.
- Compare expected vs actual usage.
- Flag anything outside your normal range.
- Pick one item with the biggest variance and apply one fix (portion tools, prep batch size, POS button, receiving checklist, or count method).
This keeps your review short and makes the metric actionable.
Streamline Your Inventory. Order Smartly.
Start Simplifying Your Orders with Altametrics
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Frequently Asked Questions
What should I include in a waste log?
Track date, item, quantity, reason, and cost value. Reasons should be specific (over-prep, remake, expired holding, quality reject, damaged, vendor issue).
What's the best day to do inventory counts?
Pick a consistent low-activity time each week (often early morning). Consistency matters more than the specific day.
Why is food cost variance the most important metric?
Variance shows the gap between expected and actual usage. It helps you find loss from waste, portioning issues, ringing errors, or inventory mistakes.
What causes high actual food cost in fast food?
Common causes include over-portioning, waste, remakes, theft, missed invoices/credits, poor receiving, and inaccurate inventory counts.
