COGS stands for cost of goods sold. For restaurants, this means the direct cost of everything that ends up on a customer’s plate or in their glass. It’s the raw ingredients you purchased that became the food and drinks you sold.

The main components of restaurant COGS include food costs like proteins, produce, dairy, grains, oils, and spices. Beverage costs fall into COGS too, covering alcohol, soft drinks, coffee, and juice. If you do takeout or delivery, paper goods and packaging count as well since they’re directly tied to the product you’re selling.

What’s not included matters just as much. Labor is not COGS, even kitchen labor. Neither is rent, utilities, equipment, cleaning supplies, linens, or smallwares like plates and utensils. Those are operating expenses that hit your income statement differently. The distinction affects how your profit and loss statement reads and how you analyze your margins.

The basic formula is beginning inventory plus purchases minus ending inventory equals COGS. This is why inventory counts are non-negotiable for restaurants. If you don’t know what you started with and what you have left, you can’t calculate accurate cost of goods sold. Most restaurants count inventory weekly, and some high-volume spots do it more frequently for key items.

Your food cost percentage is COGS divided by food sales. This number tells you what portion of every dollar in food revenue went toward the product itself. Most restaurants target 28% to 35% for food costs and 18% to 24% for beverage costs. Higher percentages mean you’re either paying too much for product, experiencing waste or theft, portioning incorrectly, or your menu prices are too low.

Tracking COGS accurately requires keeping food and beverage purchases separate from operating supplies in your accounting. A small business bookkeeper familiar with restaurants will set up your chart of accounts so these categories are distinct, making it easy to run food cost reports and spot problems before they eat into your profit.