How much does it really cost you to make one of your products? Not the price of the ingredients estimated by eye, but the exact number on which to build your selling price and margin. I have seen it many times in an artisan workshop: everyone works incredibly hard, but at the end of the month the numbers don't add up — and almost always the problem starts here, with a food cost that was calculated badly or not at all.
The starting point is called food cost. In this guide we look at what it is, the formula to calculate it, a complete example with numbers and the mistakes that make it unreliable — the ones I have seen happen most often, not the textbook ones.
What is food cost
Food cost is the cost of the raw materials needed to make a product. Strictly speaking it is the cost of the ingredients alone (sometimes packaging is included), and it is expressed both as an absolute value (euros per product) and as a percentage of the selling price.
Here is the distinction that makes the difference between a useful calculation and one that misleads you: "pure" food cost only considers the ingredients. The real cost of production — the one you should base your price on — also includes labour, packaging, energy and a share of fixed costs. This more complete figure is called the CPF (Costo Pieno di Fabbricazione, i.e. full production cost), and we will get to it further on.
The food cost formula
The basic formula is simple:
Food cost (€) = Σ (quantity of each ingredient × unit price)
And the percentage version, useful for pricing:
Food cost % = (food cost ÷ selling price) × 100
The only delicate step is the unit price: it must always be converted to the unit of measure used in the recipe. If you buy flour at €22.50 for a 25 kg sack, the price per kg is €0.90/kg (22.50 ÷ 25); if the recipe uses 300 g, the cost is 0.90 × 0.300 = €0.27. It sounds trivial, but this is exactly where mistakes creep in when you are working in a hurry between one production run and the next.
Worked example: the food cost of a jam tart
Let's take a jam tart. Here are the ingredients, the quantities and the cost calculated from the purchase price per kg:
| Ingredient | Quantity | Price (€/kg) | Cost |
|---|---|---|---|
| 00 flour | 300 g | 0.90 | €0.27 |
| Butter | 150 g | 8.00 | €1.20 |
| Sugar | 120 g | 1.10 | €0.13 |
| Eggs | 100 g (2) | 5.00 | €0.50 |
| Jam | 250 g | 4.50 | €1.13 |
| Total raw materials | €3.23 |
The raw-material food cost of this tart is therefore €3.23. It is the starting figure — but on its own it is not enough to decide the price.
From food cost to real cost: yield and weight loss
The raw dough weighs about 920 g (the sum of the ingredients). After baking, water evaporation brings the product down to about 800 g: a weight loss of about 13%.
The cost of the ingredients doesn't change (you bought all of them), but if you sell by weight, the cost per kilo of finished product does change:
- On raw weight: €3.23 ÷ 0.920 kg = €3.51/kg
- On baked weight (what you sell): €3.23 ÷ 0.800 kg = €4.04/kg
Ignoring weight loss means underestimating the real cost by about 13% (the real cost is about 15% higher than the one calculated on raw weight) and, as a result, underpricing the product. It is one of the most frequent slips, and it is amplified in leavened and baked products, where evaporation matters a lot. Standardising recipes with the actual yield — the real one, not the theoretical one — is the way to avoid mistakes: it is exactly the job done by good recipe management with normalisation and versioning.
Food cost is not everything: the CPF (full production cost)
To arrive at the right price you have to add to the food cost all the other items needed to produce. Back to the tart (the labour figures and costs are an example, to be calibrated on your own workshop):
| Item | Cost |
|---|---|
| Raw materials | €3.23 |
| Packaging (box + base) | €0.40 |
| Labour cost (share per piece) | €1.50 |
| Variable costs (energy, baking) | €0.30 |
| Share of fixed costs (overhead) | €0.50 |
| Total CPF | €5.93 |
The difference is significant: the food cost says €3.23, but producing that tart really costs you €5.93. Anyone who sets the price looking only at the ingredients risks selling at a loss without noticing — and when you do notice, it is usually because the year-end accounts don't add up.
From cost to selling price
There are two lenses, and it is best to use them together:
- Food cost percentage. It is the most quoted index. If you want raw materials to account for about 30% of the price: 3.23 ÷ 0.30 = €10.77. The "ideal" threshold is not universal — it varies a lot by sector, product and channel (an indicative value for many food businesses is between 25% and 35%) — so use it as a reference, not as a rigid rule.
- Markup on the CPF. More solid, because it starts from the real cost. Applying, for example, a multiplier of 2.5 to the CPF: €5.93 × 2.5 = €14.83. At that price raw materials account for 21.8% — a healthy margin that covers labour and costs.
Finally, remember that wholesale and retail have different prices: when selling to distributors the markup is lower (larger volumes, no direct-selling costs), while in retail you can sustain a higher margin. Calculating both from the same CPF keeps you from "giving away" margin in wholesale — another classic that I have seen done in good faith.
The most common mistakes that distort food cost
- Ignoring weight loss and yield. Calculating on raw weight instead of on the finished product leads to underpricing, especially in baked goods.
- Forgetting the labour cost. It is often the heaviest item after raw materials, and the one that most frequently "disappears" from the calculations.
- Not counting packaging and variable costs. Boxes, trays, labels and energy are real costs for every piece.
- Working with outdated supplier prices. When a supplier raises prices, every product that uses that ingredient changes cost. Updating by hand is slow and easy to forget: you need a mechanism that recalculates all products in cascade when a price changes, like supplier management with automatic cascade.
- Calculating "by eye" in Excel with no history. A spreadsheet doesn't version recipes, doesn't flag formula errors and doesn't keep track of how cost changes over time. It works as long as products are few, then it becomes fragile — the limits of Excel for food cost show up quickly when the catalogue grows.
From Excel to automation
Once you understand the logic, calculating food cost by hand for every product, at every price change, becomes repetitive work with a risk of error. It is time to automate — and it is exactly the problem KoreLab was born from.
KoreLab calculates food cost and CPF automatically: enter the recipe and the production batch and you get CPF, yield and pieces in real time. When a supplier changes a price, the recalculation propagates in cascade to all linked products — no more manual updates. From the CPF, the Price lists automatically calculate wholesale and retail selling prices with the markup or margin formula you prefer, always aligned with every recalculation. And from the same recipe you generate the technical sheet with allergens and nutrition values.
You can start for free with your first products, no credit card required: create a free account.
In summary
Food cost is the cost of a recipe's raw materials, and it is calculated by adding up quantity times unit price for each ingredient. But to set the right price you have to go further: consider the weight loss, add labour, packaging and costs to reach the CPF, and only then reason about percentage and markup. The most expensive mistakes are not in the complicated calculations, but in the forgotten items — I have seen it in production many times, and that is exactly where having the right numbers, always up to date, changes the result.