Discount promotions seem good for revenue, but they increase your food cost and shrink your margin. Many entrepreneurs forget to calculate this and are surprised by lower profits despite more sales. In this article, you'll learn exactly how discounts affect your numbers and how to explain this to your team.
Why discounts increase your food cost
Your food cost percentage is calculated based on your actual selling price. When you give a discount, your selling price drops but your ingredient costs stay the same. This automatically increases your food cost percentage.
💡 Example:
Normal situation:
- Menu price: €32.00 (incl. VAT)
- Selling price excl. VAT: €29.36
- Ingredient costs: €9.00
- Food cost: 30.7%
With 20% discount:
- Selling price with discount: €23.49 excl. VAT
- Ingredient costs: €9.00 (stays the same!)
- Food cost: 38.3%
Your food cost rises from 31% to 38%
The impact on your margin per dish
Beyond a higher food cost, you also have fewer euros left per dish to cover your fixed costs. This directly affects your profitability.
💡 Example of margin impact:
Normal dish (€32.00):
- Ingredients: €9.00
- Margin for staff/rent/profit: €20.36
With 20% discount (€25.60):
- Ingredients: €9.00
- Margin for staff/rent/profit: €14.49
You lose €5.87 margin per dish
⚠️ Important:
A 20% discount doesn't mean you make 20% less profit. The impact is much bigger because your fixed costs stay the same.
How to explain this to your team
Your team needs to understand that discounts aren't 'free'. Use concrete numbers to show what they cost.
- Show the real food cost: "This dish normally has 31% food cost, with discount it becomes 38%"
- Calculate it back to volume: "We need to sell 30% more to make the same profit"
- Make it personal: "Every discount we give means less budget for wage increases"
When discounts make sense
Discounts can be strategically worthwhile, but you need to be aware of the impact and find compensation.
- Slow-moving items: Better to discount than waste
- Volume compensation: If you're sure you'll sell much more
- Customer retention: For regular guests who might otherwise leave
- Competition: If you'd otherwise lose market share
💡 Break-even calculation:
With 20% discount you need 30% more volume for the same profit:
- Normal margin per dish: €20.36
- Margin with 20% discount: €14.49
- Extra volume needed: €20.36 ÷ €14.49 = 1.40 (40% more)
Not selling 40% more? Then you lose money.
Alternative actions with less impact
There are ways to attract guests without hitting your margin so hard:
- Free side dish: Costs only the ingredients (€2-3) instead of €6 discount
- Offer upgrades: "For €3 extra you get the premium version"
- Bundle deals: Starter + main course for fixed price
- Loyalty card: After 10 visits get 1 free (spreads the costs)
How to track and monitor this
To stay on top of the impact of promotions, you need to track what discounts cost you.
- Record every discount with reason and amount
- Calculate your average selling price per dish weekly
- Compare your actual food cost with your target food cost
- Track whether volume increase compensates for the discount
With a system like KitchenNmbrs you can see per dish what discounts do to your food cost and whether promotions are profitable.
How do you calculate the impact of discounts? (step by step)
Calculate your normal food cost percentage
Divide your ingredient costs by your selling price excluding VAT and multiply by 100. This is your baseline to measure the impact of discounts.
Calculate the new selling price with discount
Subtract the discount percentage from your menu price and calculate back to excluding VAT. This becomes your new basis for the food cost calculation.
Calculate the new food cost and margin impact
Divide the same ingredient costs by the lower selling price for your new food cost. Also calculate how much margin you lose per dish and how much extra volume you need.
✨ Pro tip
Always calculate the break-even volume before you start a discount promotion. If you're not sure you'll sell 30-40% more, choose alternatives like free side dishes instead.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Can I give discounts without increasing my food cost?
No, every price discount automatically increases your food cost percentage because your ingredient costs stay the same. You can limit the impact by choosing smart alternatives.
How much extra do I need to sell to compensate for a discount?
With 20% discount you need approximately 40% more volume. The formula is: normal margin divided by new margin. Usually this is more than entrepreneurs think.
Are there times when discounts are always bad?
Yes, if you already have a high food cost (above 35%) or if you're not sure the volume will increase enough. Then you're guaranteed to lose money on every sale.
How do I explain to my team why we give fewer discounts?
Show concrete numbers: how much less is left per dish and how much more they need to sell. Make it personal by linking it to budgets for wages or investments.
What are better alternatives than price discounts?
Free side dishes cost only ingredients (€2-3), upgrades for a small amount, bundle deals, or loyalty cards that spread the costs over multiple visits.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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