The One Number That Decides Whether Your Restaurant Survives: Understanding COGS


ST. LOUIS, MO (StLouisRestaurantReview) For many restaurant owners and chefs, Cost of Goods Sold—better known as COGS—is treated as an accounting concept best left to the bookkeeper. That mindset is one of the most common and costly mistakes in the restaurant industry. COGS is not just a back-office metric. It is a daily operational reality that determines menu pricing, portion control, purchasing decisions, profitability, and ultimately whether a restaurant stays in business.


Across St. Louis and beyond, restaurants that close often share a similar story: sales were strong, the dining room was busy, but the money never seemed to be there. In most cases, the problem wasn’t a lack of customers—it was poorly measured or misunderstood COGS, leading to underpriced menus and shrinking margins.


This article explains what COGS really is, what should (and should not) be included, why chefs must care as much as owners, and the critical questions every restaurant should be asking their bookkeeper to stay profitable.

What Is COGS in a Restaurant—Plain and Simple


COGS represents the direct cost of producing the food and beverages you sell. If an item is required to put a dish or drink in front of a guest, it belongs in COGS. If it supports the business but doesn’t directly become part of what’s sold, it does not.


Unlike labor, rent, or utilities, COGS fluctuates with volume. The more you sell, the more COGS you incur. That’s why accurately tracking it is essential to understanding whether higher sales are actually improving profitability—or just increasing losses faster.

What Should Be Included in Restaurant COGS


Food Ingredients


All raw ingredients that go into menu items belong in COGS, including:

Meat, poultry, seafood


Produce and herbs


Dairy products


Dry goods such as rice, pasta, flour, and grains


Oils, fats, spices, and seasonings


Sauces, marinades, and dressings


Baking ingredients

If it ends up on the plate, it belongs in COGS—without exception.

Beverage Ingredients


Restaurants should track beverage COGS separately, but it is still part of the overall COGS:

Beer, wine, and spirits


Mixers, syrups, juices


Coffee, espresso beans, tea


Soda syrup and carbonated beverages

Bar-focused concepts often live or die by beverage COGS discipline.

Disposable Food-Related Packaging


These are commonly misclassified, but they are COGS:

To-go containers and lids


Cups, straws, napkins


Portion cups


Pizza boxes


Foil, parchment paper, wax paper

These items are required to sell the product, especially in today’s takeout-heavy environment.

Direct Production Items

Purchased ice


Garnishes


Complimentary bread, chips, or salsa

“Free” items are not free to the business. They are still COGS.

What Does NOT Belong in COGS (But Often Gets Put There)


Misclassifying expenses hides real problems and destroys pricing accuracy.

Not COGS:

Kitchen labor, prep staff, bartenders, servers, managers


Payroll taxes and benefits


Rent, CAM, utilities, internet


Equipment purchases and repairs


Smallwares like pots, pans, knives, plates, and glassware


Cleaning supplies and janitorial services


POS fees, credit card processing, and third-party delivery commissions


Marketing and advertising

These are operating expenses, not COGS. Mixing them together makes it impossible to understand food profitability.

Why Chefs Must Care About COGS as Much as Owners


Chef's control:

Portion sizes


Ingredient substitutions


Waste and spoilage


Menu complexity

A menu that looks great on paper can quietly destroy margins if portioning is inconsistent or ingredients are not costed accurately. Even small over-portioning—an extra ounce of protein, a heavier pour of sauce—multiplied across hundreds of covers per week can push COGS several points higher.


In today’s environment, a two-point increase in COGS can be the difference between profit and loss.

The Formula Every Restaurant Should Know


COGS is not what you spend in a month. It is what you use.


**Beginning Inventory

Purchases– Ending Inventory= COGS**

Restaurants that skip inventory counts and rely only on vendor invoices almost always misprice their menus.

Normal COGS Ranges by Restaurant Type


While every concept is different, industry averages provide a reality check.

Cuisine / Concept Type


Typical COGS Range

Pizza


22% – 28%

Mexican / Tex-Mex


28% – 33%

Asian (Thai, Chinese, Vietnamese)


30% – 35%

Italian


28% – 34%

American Casual Dining


30% – 35%

Fast Casual


25% – 30%

Bar-Heavy Concepts


20% – 25%

Fine Dining


32% – 38%

NOTE: If your restaurant consistently exceeds these ranges without premium pricing, profitability is being silently eroded.

The #1 Reason Restaurants Misprice Menus


Most failed restaurants did not “lack customers.” They lacked accurate cost data.


Common mistakes include:

Pricing menu items based on competitor prices instead of actual costs


Failing to update pricing after vendor cost increases


Ignoring packaging and garnish costs


Not separating food and beverage COGS


Relying on outdated recipes or portion assumptions

When menu pricing is based on guesswork, volume only accelerates losses.

Questions Every Owner and Chef Should Ask Their Bookkeeper


If your bookkeeper cannot answer these clearly, your operation is at risk.

How often are we calculating true COGS—not just purchases?


Do we separate food COGS, beverage COGS, and paper goods?


Are inventory counts being performed monthly at a minimum?


Are third-party delivery fees excluded from COGS?


Can you show COGS as a percentage of sales by month?


Are we tracking COGS trends as costs increase?


Can we tie menu pricing directly back to ingredient costs?

COGS is not just accounting data—it is operational intelligence.

Why Accurate COGS Tracking Is the Difference Between Survival and Closure


Industry data from restaurant trade associations and accounting studies consistently show that failure to accurately track COGS and price menus accordingly is a leading cause of restaurant closures. Rising food costs, higher interest rates, and tighter consumer spending have eliminated the margin for error.


Restaurants that survive are not always the busiest—they are the most disciplined. They know their numbers, proactively adjust pricing, and relentlessly control waste.


In today’s environment, ignoring COGS is not a minor oversight. It is a business-ending decision.

The Bottom Line for St. Louis Restaurants


COGS is not an accounting exercise. It is the financial heartbeat of a restaurant. Owners must understand it. Chefs must manage it. Bookkeepers must record it accurately.


Restaurants that treat COGS as optional eventually price themselves out of existence. Those who respect it gain clarity, confidence, and a fighting chance in an industry where margins are thin and mistakes are unforgiving.


In 2026, measuring COGS correctly is not optional—it is survival.


© 2025 - St. Louis Media, LLC d.b.a. St. Louis Restaurant Review. All Rights Reserved. Content may not be republished or redistributed without express written approval. Portions or all of our content may have been created with the assistance of AI technologies, like Gemini or ChatGPT, and are reviewed by our human editorial team. For the latest restaurant news and reviews, head to St. Louis Restaurant Review. https://stlouisrestaurantreview.com/a-number-that-decides-whether-your-restaurant-survives/