Food cost typically accounts for 28-35% of restaurant revenue. Yet many restaurants don't know their true food costs until the end of the month — when it's too late to act. Proper inventory management changes that.

Here's everything you need to know about managing restaurant inventory effectively.

Why Inventory Management Matters

Organized inventory is the foundation of food cost control

The Impact on Profits

For a restaurant doing $50,000/month in revenue:

• Target food cost: 30% ($15,000)
• Actual (unmanaged): 35% ($17,500)
• Monthly loss: $2,500
• Annual loss: $30,000

That $30,000 difference is often the margin between profit and loss.

What Inventory Management Does

1. Tracks what you have — Know your stock levels
2. Monitors food costs — Real-time cost percentage
3. Reduces waste — Identify and prevent waste
4. Optimizes ordering — Order right amounts at right time
5. Prevents theft — Accountability for ingredients
6. Improves recipe costing — Know true cost per dish

Inventory Management Approaches

Basic: Spreadsheets

The starting point for many restaurants:

How it works:

• Count inventory weekly/monthly
• Track in Excel/Google Sheets
• Calculate costs manually

Pros: Free, simple, customizable
Cons: Time-consuming, error-prone, no real-time data

Best for: Very small operations, tight budgets

Intermediate: POS-Integrated

Modern POS systems include basic inventory tracking

Your POS tracks inventory as items sell:

How it works:

• Define ingredients per menu item
• POS deducts inventory with each sale
• Reports show theoretical usage

Examples: Square, Toast, TouchBistro, Lightspeed

Pros: Automatic tracking, integrated
Cons: Limited features, recipe costing varies

Best for: Restaurants using modern cloud POS

Advanced: Dedicated Systems

Specialized inventory management software:

How it works:

• Full ingredient tracking
• Vendor management
• Recipe costing
• Waste logging
• Purchase ordering
• Analytics and reporting

Examples: MarketMan, BlueCart, Lightspeed Inventory

Pros: Comprehensive, accurate, actionable
Cons: More expensive, learning curve

Best for: Serious about food cost control

Best Inventory Management Solutions

1. Lightspeed Restaurant — Best Built-In

Price: Included with Lightspeed ($139-319/month)
Type: POS-integrated

Lightspeed offers the best ingredient-level inventory tracking built into a POS system.

Features:

• Ingredient-level tracking (not just items)
• Automatic deductions per sale
• Recipe building and costing
• Low stock alerts
• Vendor management
• Multi-location sync
• Waste tracking

Pros:

• No separate system needed
• Deep POS integration
• Ingredient-level accuracy

Cons:

• Requires Lightspeed POS
• Initial setup takes time
• Higher overall POS cost

Best for: Restaurants using Lightspeed

Read our Lightspeed review

2. MarketMan — Best Standalone

MarketMan provides comprehensive inventory management for any restaurant

Price: $127-299/month
Type: Standalone (integrates with POS)

MarketMan is a dedicated inventory platform that integrates with most major POS systems.

Features:

• Full inventory tracking
• Recipe costing
• Purchase ordering
• Vendor management
• Waste logging
• Actual vs. theoretical reporting
• Multi-location support

Pros:

• Comprehensive features
• Works with multiple POS systems
• Strong analytics

Cons:

• Additional cost on top of POS
• Learning curve
• Requires consistent usage

Best for: Restaurants serious about inventory

3. BlueCart — Best for Ordering

Price: Free-$149/month
Type: Ordering-focused

BlueCart emphasizes the purchasing and vendor management side of inventory.

Features:

• Vendor marketplace
• Purchase ordering
• Price tracking
• Invoice management
• Inventory tracking
• Recipe costing

Pros:

• Free tier available
• Strong vendor management
• Price comparison

Cons:

• Less robust inventory tracking
• Fewer integrations

Best for: Multi-vendor ordering focus

4. Toast Inventory (xtraCHEF)

Price: Add-on to Toast
Type: POS-integrated

Toast acquired xtraCHEF to add advanced inventory to their platform.

Features:

• Invoice scanning
• Automated data entry
• Recipe costing
• Food cost tracking
• Waste tracking

Pros:

• Toast integration
• Invoice automation
• Good for Toast users

Cons:

• Toast only
• Additional cost
• Newer product

Best for: Toast users wanting advanced inventory

5. Square — Basic Built-In

Price: Included with Square
Type: POS-integrated

Square includes basic inventory tracking, suitable for simple operations.

Features:

• Item-level tracking
• Low stock alerts
• Purchase history
• Cost tracking

Pros:

• Free with Square
• Simple to use
• Automatic sync

Cons:

• Item-level only (not ingredient)
• Basic features
• No recipe costing

Best for: Simple operations, Square users

Comparison Table

Implementing Inventory Management

Step 1: Recipe Costing

Know the exact cost of every ingredient in every dish

Before tracking inventory, you need accurate recipe costs:

1. List all ingredients for each menu item
2. Calculate portion costs (price per unit × amount used)
3. Sum total food cost per dish
4. Calculate food cost % (food cost ÷ selling price)

Example:

• Burger patty: $1.50
• Bun: $0.30
• Cheese: $0.25
• Toppings: $0.75
• Total food cost: $2.80
• Selling price: $12.00
• Food cost %: 23.3%

Step 2: Set Up Tracking

Configure your system:

• Enter all ingredients with units and costs
• Link ingredients to menu items (recipes)
• Set par levels for reordering
• Define suppliers/vendors

Step 3: Establish Counting Schedule

Weekly counts: Perishables (proteins, dairy, produce)
Monthly counts: Dry goods, frozen items, beverages

Tip: Same person, same day, same time for consistency.

Step 4: Track Waste

Log all waste:

• Spoilage
• Preparation waste
• Customer complaints/remakes
• Employee meals
• Comps and promos

This reveals the gap between theoretical and actual food cost.

Step 5: Analyze and Act

Regular analysis turns data into actionable improvements

Weekly review:

• Compare actual vs. theoretical usage
• Identify high-variance items
• Address waste issues
• Adjust ordering

Monthly review:

• Full food cost calculation
• Trend analysis
• Menu engineering (profitability by item)
• Vendor performance

Key Metrics to Track

Food Cost Percentage

Formula: (Beginning Inventory + Purchases - Ending Inventory) ÷ Sales × 100

Target: 28-35% (varies by concept)

Waste Percentage

Formula: Waste Value ÷ Total Food Cost × 100

Target: Under 5%

Inventory Turnover

Formula: Cost of Goods Sold ÷ Average Inventory

Target: 4-8x monthly (higher for perishables)

Theoretical vs. Actual Food Cost

Formula: Actual Food Cost - Theoretical Food Cost

Target: Within 1-2% variance

Common Inventory Mistakes

1. Inconsistent Counting

Different people, different methods, different results. Standardize who counts, when, and how.

2. Not Tracking Waste

Throwing food away without logging it hides the true cost. Track everything.

3. Ordering Based on Feel

"I think we need more..." leads to over-ordering. Use data and par levels.

4. Ignoring Small Variances

Small variances add up. A 1% overage on $15,000/month food cost = $1,800/year.

5. Set-and-Forget Recipes

Ingredient costs change. Update recipe costs quarterly at minimum.

Frequently Asked Questions

How often should I count inventory?

Weekly for perishables, monthly for dry goods. High-theft items may need more frequent counts.

What's a good food cost percentage?

28-35% is typical. Fine dining may run higher, fast food lower. Know your concept's benchmark.

Do I need inventory software?

For very small operations, spreadsheets work. For any serious restaurant, POS-integrated or dedicated software saves time and improves accuracy.

How do I reduce food waste?

1. Order accurately (use data)
2. FIFO rotation (first in, first out)
3. Train on portions
4. Cross-utilize ingredients
5. Track and address waste

What causes high food cost?

Common culprits: over-portioning, waste, theft, poor recipes, vendor price increases, menu pricing too low.

Conclusion

Effective inventory management directly improves your bottom line

Inventory management isn't glamorous, but it directly impacts profitability. The difference between "winging it" and systematic tracking is often the difference between profit and loss.

Our recommendations:

• Lightspeed users: Use built-in ingredient tracking
• Toast users: Consider xtraCHEF add-on
• Square users: Adequate for simple needs
• Serious about food cost: MarketMan or BlueCart
• Budget priority: Start with spreadsheets, upgrade later

For complete restaurant technology setup, see our tech stack guide and POS comparisons.