The Restaurant Biz Blog

Recipe Costing for Profit

In a previous blog post, I wrote an overview on recipe costing, since this is so important we are going to expand on this further.

When you ask a restaurant owner/chef about recipe costing, the usual answers are: "We don't have time to do that" or "By the time we get done it won't be accurate any more" or "How will that help, we're doing okay". All of these responses beg the questions: has the potential, ideal or theoretical cost been established? What is it? What method was used to determine the projected cost?

Proper recipe costing is a somewhat tedious and time-consuming task; however, when compared with the potential dollars lost through undetected high food cost, it is time and money well spent. Large restaurant operations frequently prepare budgets without thorough research into the various components that constitute the overall food cost.

Before attempting to cost out recipes, it is necessary to run yield tests not only on the center-of-the-plate items, i.e., meat, fish and poultry, but also the vegetables, starches, sauces and garnishes. It is important to note that when doing butcher tests and fish tests, not only is the net cost of product of interest, but so is the time necessary to do the preparation.

This is especially true if the chef or the sous chef or some other highly trained, highly paid individual is doing the butchering. That person's time, while not part of the food cost calculation, is part of the labor cost, and one must ask if that is the best use of time and talent. It is appropriate at that time to study the total cost of doing the butchering in-house vs. buying portion-controlled products, taking into consideration the ability to use the byproducts, quality control issues, consistency of yield and net cost of the plated product.

The time spent cutting meat, fish and poultry also has a direct relationship to the sales abstracts when preparing production charts for the kitchen staff to maximize utilization of labor hours. Too often, operators take shortcuts by attempting to cost recipes using the gross cost of ingredients, resulting in artificially low costs - and then wonder why they cannot achieve their cost objectives.

Costs must also be included for tabletop gratis items such as bread, butter, relish trays or any other complimentary items included with a given meal period function. Random checking of plated items must be done to determine if the production staff is adhering to established portion guidelines.

ESSENTIAL ELEMENTS - Key information needed for recipe costing:

• Date recipe was costed
• Meal period
• Recipe name
• Last update
• Yield
• Portion size
• Cost per portion
• Profit per portion
• Suggested selling price
• Food cost percentage at suggested selling price
• Ingredient description
• Purchase price
• Per unit
• Recipe unit of measure
• Cost per unit of measure
• Extended ingredient cost
• Total recipe cost
• Suggested selling price to achieve specific food cost goals, i.e., 25 percent, 30 percent, 35 percent
• Plating instructions
• Garnishes

Once each recipe is properly costed; a review of the sales is needed to determine how the mix of sales will affect the overall theoretical cost. Then each recipe's cost and selling price are entered into a spreadsheet, the only ongoing task is to enter the mix of sales for the period under review to determine the food cost potential for that period. This period can be by day-part, by day, by week or by month.

Any time the cost of recipe ingredients changes radically, recipes are added or deleted from the menu, special pricing is offered to clients or there is any other factor that could change the relationship among recipe costs, revenue and sales mix, you should calculate a new theoretical cost. You must remember that this "ideal" cost assumes there is no waste, over portioning, pilferage, spilled food, employee consumption of food, etc. In reality this does not exist in day-to-day operations; however, well-run operations frequently can maintain costs within one or two percentage points of potential through diligent cost-control systems.

Without the knowledge gained through recipe costing and the subsequent application of those individual costs to the sales mix to determine what costs should be. It would be nice to say that recipe costing would solve all the problems; however, it is only one piece of the puzzle, an important one, that constitutes the total picture of any well-run food and beverage operation.

Before any management team can determine what it wants its food costs to be in the future, it must determine what they are today and then decide the most prudent approach to achieving its food cost goal. At the same time it must continue to provide guests with perceived value for their catering dollar. Recipe costing is a necessary first step to that end.

There are also many inventory software solutions on the market today that can help automate this process and give you accurate and timely inventory costing reports.

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Recipe Costing - Where Do I Begin?

Recipe costing is one of the most important areas a restaurant must address and it's a time consuming process to do it correctly. You need to do this so you can accurately set menu pricing, know when to increase prices and when to eliminate the items off your menu. Price it too high and you may lose customers if they feel the value is not there. If you price it too low, the difference between your actual price and what you should be charging comes right off your bottom line.

Restaurant owners should know what their actual gross profit margins are on each food item they are selling. In order to know this, you will need to standardize your recipes. This means there will be no more guesswork and no more surprise food cost fluctuations. Standardized recipes mean greater consistency, better food cost, and more satisfied customers.

Now you are probably asking, "where do I start?" Start with your entrees, as they are usually your higher cost items. Be very specific about how the center of the plate choices go from the cases of raw ingredients and onto the plate going out to your dining room. Some questions to ask yourself:

• Do you portion by cooked weight, pre-cooked weight, portion control item, ladle or piece?
• Is there a portion control system in place to ensure consistency for both the guest and the accounting staff?
  

You can't spend enough time in this area. This is where the major decisions are made in any recipe costing exercise.

The entrees usually have a cost of goods sold higher than your actual food cost percentage. If you have a 35% food cost percentage, you may see the entrees coming in at 40%. The reason the entrees run higher than the food cost percentage is the beverages typically have portion costs far below the overall percentage. Sales of beverages are made in higher volumes than the sale of entrees. These profitable items will help to lower the overall cost percentage.

Chefs and kitchen managers will get involved once they see you are factoring sides, bread and butter, garnishes, etc. into the total cost of these entrees. They should have been correctly trained to price entrees to cover all these costs. In addition, they may be able to point out entrees with a high food cost percentage that can produce high gross margins. As you gain the support of the kitchen staff in your exercise, have them proceed to cost any side, starch, bread, roll, garnish and condiment needed to serve each entree.

Maintain a focus on the production and service of center of the plate items. You will find a high percentage of purchase volume is devoted to the raw ingredients needed to produce these entree items.

Once you have completed your entrees, then move on to your other menu items keeping the momentum so you will have costing for all of your menu items. Once this is done don't forget to maintain this information as new items are added or as recipes change, this is an ongoing process. There are many tools available to help with this process, from Excel spreadsheets to inventory software solutions, you need to determine will one is right for you. No matter which one you select, they must be able to do the following:

• Maintain an accurate inventory of all food products, prices and period ending totals
• Find a simple and easy to use method of accurately costing their recipes 
• Calculate the food cost percentage and gross margin of each item on their menu as well as the averages for each menu category, and 
• Determine the "theoretical or ideal food cost" of their menu and menu categories based on how many of each item they sell.

 
Related Articles

• How Do You Control Food Costs?
• Inventory Forecasting: You Can't Manage If You Don't Measure?
• How Does Food Waste and Theft Happen In A Restaurant?
• Top 3 Areas For Reducing Food Costs
  

 

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Interested in learning about how we can help you manage your food costs? Join us for a demo of our inventory system.

Become a fan on our Facebook page or follow us on Twitter to keep updated on new product features, industry news, and tips on topics like inventory management.