How to Calculate Recipe Costs For Your Restaurant
Developing unique recipes is a fantastic way to make your restaurant stand out from the competition. Creating dishes that customers can’t find anywhere else will keep them coming back again and again. But the key to creating a recipe is developing one that is both irresistible to the palate and profit-generating. How can you do that? By learning how to do recipe costing.
What is recipe costing?
Recipe costing is figuring out the cost of each ingredient you use in a single menu item, and it tracks the individual ingredients for the dish’s portion size down to the penny. There are a few key components to accurate recipe costing—standardized recipes, up-to-date inventory, and exact vendor prices. With these many factors, it’s helpful to have restaurant management software that integrates with your POS system and accounting software.
In this article, you will learn:
- Why recipe costing is important
- How to calculate recipe cost
- How to get the most out of your recipe costing
Why Food Costing is Important
Controlling food costs is an essential element to running a successful, profitable restaurant. When planning a menu, you can’t price items on a whim—you need data to cement your decisions. That’s why recipe costing is so important. An accurate recipe cost (or plate cost) informs your food costs, and it can also assist in optimizing your profit margin on all dishes you serve in your restaurant.
5 General Steps For Optimal Recipe Costing
1. Do a Thorough Inventory Check
You may already have a process or software that you use to manage your inventory. If that’s the case, this step will be a breeze. Make a list of all the food items you have purchased for this recipe, along with their costs. You may need to break down the price by tablespoon, ounce, or any other measurement you use when adding a given ingredient to a recipe. This process will also be helpful later if you decide to reduce what you spend on a particular ingredient to increase the profit margin for your recipe.
2. Cost the Dish
Using the list of ingredients and prices you created, plug them into the recipe you have developed. The easiest way to do this is to have the recipe handy and write the cost for each ingredient next to it. For example: if for your recipe for Boeuf Bourguignon, you need 5 ounces of chuck beef, and you pay $4.25 a pound for it, you can estimate the cost for that ingredient to be about $1.32 ($4.25/16 ounces * 5 ounces). Do the same for all other ingredients in the recipe.
3. Don’t Overlook “Extra” Expenses
While it’s easy to assign a dollar value to ingredients that go into the dish, don’t forget other food costs, such as the complimentary bread and butter you provide each table or the occasional free birthday dessert. Frying oil and seasonings, too, should be factored in, though they are used sparingly in each dish. To calculate these costs, look at your monthly usage of the food item and divide by the average monthly entrees ordered, then add that to the cost of the dish you’re calculating.
4. Figure Out Your Profit Margin
You can look at other dishes your restaurant serves to see your average profit margin on a menu item. It will probably line up with the industry average of 3% to 9%. These factor in other expenses beyond food costs, like staffing, overhead, and marketing. Let’s say you’re getting a healthy 5% profit on some dishes, so you want to aim for the same with others.
If you’ve broken down what your non-food expenses are per dish, add that to the recipe cost to get your total cost for the dish. Then add 5% to get your menu price. Let’s say your Boeuf Bourguignon costs $7.35 per serving to make, and your overhead, staffing, and marketing break down to another $4 per dish. That’s $11.35. Add 5% to that to get $11.91. You could price the dish at $12 and still make a small profit.
5. Look at the Labor
Even if it’s possible to make a profit on the dish, another question to consider is whether it’s too time-consuming to make on a busy night in the restaurant. If many patrons order the dish, it may take away from your kitchen staff having time to turn out other orders promptly. If the recipe requires more labor than an average meal, you might consider trying to consolidate steps, do more prep work in advance, or charge more to compensate for the more significant portion of the cost that labor eats up. MarketMan works with integrated partners like 7Shifts and ZoomShift to help reduce labor costs.
How To Calculate Recipe Cost Using Individual Ingredient Prices
How do you calculate recipe costs? The basic concept begins with separating a menu item into all of its ingredients. Next, you should rely on standardized recipes that have been measured and implemented across your restaurant operations. Then, calculate the usage and yield of each ingredient in the recipe and assign it a precise dollar amount.
The basic steps for recipe costing are:
- Write down each ingredient included in the recipe.
- Note the total cost of each ingredient in its wholesale volume or weight.
- Write down the amount of the ingredient used in the recipe, and be exact with measurements.
- With the price per wholesale item number, calculate the unit cost of the ingredient used. If a half-ounce of chicken is used, calculate how much one ounce of chicken costs.
- Calculate the price of each ingredient using the wholesale price.
Recipe Costing Example
Consider an Aperol spritz, a popular cocktail every bartender should know.
- Club soda
To start, total the costs of each ingredient in their wholesale format.
Bulk Cost Per ML
There are 29.57 milliliters in an ounce—use that number when converting to the recipe unit and calculating your ingredient cost. Take the sum of the ingredient cost column, and you’ll see that the total ingredient cost for this Aperol spritz comes out to $1.59.
Then, use this ingredient cost to figure out a profitable selling price for this cocktail. Most bars want their liquor costs to hover around 15-20%. So, with a $1.59 ingredient cost, this Aperol spritz should be priced at around $8.50 to $11.00.
Prioritizing recipe costing used to be a manual, tedious, and complicated task with spreadsheets. But now, restaurant management software can easily automate the process. You can leverage accurate vendor price lists, standardized recipes, and a food item cost database to instantly make calculations. If you don’t have restaurant management software yet, try our free recipe cost calculator here:
How To Get the Most Out of Your Recipe Costing
When you get an accurate recipe tracking system going, it’s time to apply it to various areas of your restaurant operations. Let’s start with a few key places:
Ensuring accurate recipe costs requires deeply analyzing the yield and usage your ingredients get in your dishes.
For example, some restaurant kitchens may figure out the average cost of an ingredient, like cheese, and stop there. However, if you use cheese in multiple prep recipes, the food cost percentage of that ingredient may differ. Let’s say a dish uses shredded cheddar, cotija, and queso—each of these ingredients is prepared differently, and the yield and usage may range.
Although it demands extra work, getting down to the granular level of your ingredients will allow you to gain more precision in your recipe calculations.
Analyze Theoretical Food Costs vs. Actual Costs
You can easily map out your inventory against sales and track your theoretical usage of ingredients over time if your restaurant inventory management platform integrates with your POS and accounting software.
Actual versus theoretical (AvT) food cost tracking is an effective means to track food costs. You can track the theoretical food costs (how much money you should have spent creating dishes over a specific period, assuming no waste or mistakes) once your recipes are standardized and implemented into your restaurant management system. Next, you can compare this theoretical figure to your actual food costs (what you ended up spending on menu items given your inventory levels and real-time sales).
The variance between these theoretical and actual food cost numbers uncovers a crack in your profit margin that you can now address. As you finetune your plate costs and discover what’s causing the variance, you can improve your back-of-house operations.
Revamp Your Entire Menu for Profitability
Recipe costing also aids in menu creation as you plan and design your menu to optimize profitability. You can see which menu items are both popular and profitable, as well as make decisions about which dishes to adjust, promote, or retire.
In the restaurant industry, there are four nicknames for types of dishes:
Your most popular and profitable dishes. Stars are the dishes that will get ordered repeatedly due to their uniqueness or high-quality ingredients, even at a higher price. If you’re the only restaurant in town offering fresh Maine lobster rolls, and that dish is a star for you, your customers will likely shell out more cash (no pun intended). Keep these prices steady, as there’s no reason to gouge your already-paying customers.
Your most popular but least profitable dishes. Cows could easily be stars just waiting for their moment. Customers already want to order these dishes, so it’s up to you to experiment with taking them to the next level.
It could be as simple as varying the portion size by the time of day. For example, maybe your seared ahi salad is low in profit at half size, but at full dinner sizes, it increases in value. Some appetizers could be low profit at sharing size but level up in profitability in individual portions, especially if a table feels inclined to order more than one.
Other ideas include offering premium ingredients in alternative versions of a dish or offer add-ons, such as bacon or avocado.
Your least popular and most profitable dishes. There are a few reasons why these items aren’t getting ordered:
- Off-brand - In this case, replace them with a variation of a star.
- Not clearly advertised on the menu - Try rewriting their menu descriptions, using enticing words such as “freshly grated,” “heirloom,” or “wood-fired.”
- Not interesting enough - Try adding a premium ingredient or two (while making sure the item remains profitable) or making it a limited-time offer
Your least popular and least profitable dishes. The profit potential is too low, so dogs are not even worth attempting to tweak or keep on your menu. Instead, replace them with items customers actually will order. They cost you money every single day, so do your restaurant a favor and dump these dishes.
Starting with accurate recipe costs helps you to figure out the best menu item price for your profit margin. Then, as you determine price changes on particular menu items, you can use your recipe costing figures to experiment with changing ingredients or portion sizes to maintain the price of the dish but increase the margin.