Food cost and menu pricing, with Icelandic numbers

When a supplier puts up the price of lamb or cod, you have to decide what to do with the dish on your menu. You can raise the price, change the recipe, or accept a smaller margin for a while. This guide shows the two numbers that make that decision easier: the food cost percentage and the margin in krónur on each plate. It also shows what Hagstofa’s figures say about Icelandic restaurants as a whole, as of October 2026.

Two numbers for each dish

The plate cost is what the ingredients for one portion cost you, without VAT. Include everything on the plate: the fish, the potatoes, the butter, the sauce and the garnish.

The food cost percentage is the plate cost divided by the price that you actually keep. The margin (often called the contribution margin) is the price that you keep minus the plate cost. The margin pays for wages, rent, electricity and everything else, and what is left after that is profit.

The percentage tells you if a dish is in line with the rest of the menu. The margin in krónur tells you how much each sale brings in.

Take the VAT out first

The price on your menu includes VAT, and that part of the price belongs to the state. Food and drink sold in a restaurant, alcohol included, falls under the 11 % VAT rate in article 14 of the VAT act.³ To find the price that you keep, divide the menu price by 1,11.

Take a lamb dish at 5.990 kr. on the menu, with a plate cost of 1.850 kr.

If you divide 1.850 by 5.990 instead, you get 30,9 %. The dish then looks cheaper to make than it is, and every dish on the menu looks a few points better than reality. For more on how VAT works in a restaurant, see our guide to VAT.

When an ingredient goes up

Say the price of lamb goes up and the plate cost rises 12 %, from 1.850 kr. to 2.072 kr. There are two common ways to set the new price.

• Keep the margin in krónur. The dish should still bring in 3.546 kr. per plate. The price without VAT becomes 2.072 + 3.546 = 5.618 kr., which is 6.236 kr. with VAT. On the menu you would probably write 6.290 kr.
• Keep the food cost percentage. The dish should stay at 34,3 %. The price without VAT becomes 2.072 ÷ 0,343, which is about 6.044 kr., or about 6.709 kr. with VAT.

The two methods give answers about 470 kr. apart. Keeping the percentage asks the guest to pay more than the increase in your cost. Keeping the margin in krónur passes on only the cost increase, plus the VAT on it. Neither is right for every dish. A popular dish where guests notice the price is often better with the smaller increase, and you can look for the difference elsewhere on the menu.

Look at the whole menu with your sales report

A dish with a low food cost percentage is not always your best dish. What matters is how much margin a dish brings in across all the plates you sell. A method called menu engineering, published by Michael Kasavana and Donald Smith in 1982, puts each dish in one of four groups based on two questions: does it sell well, and is its margin above the menu average?⁴

You need two things for each dish: how many you sold in a period, and the margin per plate. Your POS sales report gives you the first. The second comes from the plate cost that you worked out above. In Resto, the back office shows sales by item for any period you choose.

The usual rules from the method are:⁴

• A dish sells well when its share of all dishes sold is at least 70 % of an equal share. With 6 main courses, an equal share is about 16,7 %, so the line is about 11,7 %.
• A dish has a high margin when its margin per plate is above the weighted average for the group. You get the average by adding up the total margin of every dish and dividing by the number of plates sold.

A worked example

These numbers are made up. A restaurant sold 800 main courses in September.

The weighted average margin is 2.719 kr. per plate. The popularity line is 11,7 % of sales, which is about 93 plates.

The method calls the four groups stars, plowhorses, puzzles and dogs. Here is how to read them in this example:

• Fish of the day (star): it sells well and earns well. Keep it, keep the quality steady and put it where guests see it first. Its food cost is 38,4 %, higher than both plowhorses. A rule like “no dish above 35 %” would have told you to change your best dish.
• Plokkfiskur and burger (plowhorses): guests love them, and they bring in volume. Small changes work best here: a slightly smaller portion of the most expensive part, a cheaper side, or a modest price step.
• Lamb shank and beef tenderloin (puzzles): they earn well per plate but do not sell much. Try a better place on the menu, a better description, or a staff recommendation before you change the price.
• Vegetable dish (dog): it has the lowest food cost on the menu, 26,4 %, and still the weakest result. It may be worth a new recipe. If it is the only vegetarian main course, it may also be worth keeping for the tables that need it.

The method looks only at ingredient cost and sales. It does not count the time a dish takes in the kitchen, and it can favour expensive dishes.⁴ Use it to start a conversation with your chef, not as a final answer.

What Hagstofa shows about Icelandic restaurants

Hagstofa Íslands publishes income statements for each industry, built from tax returns. For restaurants (ÍSAT 561), 734 operators filed for 2024, with total revenue of 123.750 million kr.¹ As a share of that revenue, the main costs were:¹

From 2015 to 2024, goods and raw materials stayed between 33,7 % and 37,4 % of revenue in the same table, and wages between 36,2 % and 40,7 %.¹ From 2018 to 2024, profit before tax was never more than 4,0 % of revenue, and in 2020 it was a loss of 5,2 %.¹

These numbers are an average over hundreds of very different places, from pizza shops to fine dining. “Goods and raw materials” includes drinks and everything else that the restaurants bought to sell, so it is not the same as the food cost of one dish. Revenue in annual accounts is normally recorded without VAT. The numbers for 2024 are preliminary.

They do show that a typical Icelandic restaurant keeps about 4 kr. of profit from each 100 kr. of sales. A few points on food cost can be the difference between a good year and a hard one.

Revenue has not kept up with prices

Hagstofa reported that restaurant revenue fell 4,0 % in 2024, while consumer prices rose 5,8 % that year.² When your costs rise at that speed, a menu price that stays the same for a year earns you a little less each month.

Waste is part of your food cost

Food that goes in the bin was paid for, so it belongs in your plate cost. Umhverfisstofnun measured food waste in Iceland in 2022 with the EU method. Restaurants and food service wasted about 10,3 kg per resident, about 3.860 tonnes in total.⁵ That is far less than households (63,2 kg per resident), and Iceland measured below the European average for food service.⁵

In your own kitchen, waste shows up in three places:

• Trim and yield. If you buy a whole fillet and 20 % of it is trimmed off, cost the plate on the price of the usable part.
• Prep that is not sold. A sauce that is made fresh each day and half of it thrown out costs twice what the recipe says.
• Plate waste. If the same side comes back half eaten every evening, the portion may be too large.

Count waste for one or two weeks, then add a realistic amount to the plate cost of the dishes it affects.

A short checklist before you change prices

1. Work out the plate cost of every main dish at today’s supplier prices.
2. Take the 11 % VAT out of each menu price before you calculate anything.
3. Pull the number sold for each dish for the last one to three months.
4. Sort the dishes into the four groups.
5. Decide for each dish: keep the margin in krónur, keep the percentage, change the recipe, or change how the dish is shown on the menu.
6. Look again after a month.