Costing 101
Recipe costing is a very vital part of your restaurant operations. If you don’t do it right, there
are high chances that your restaurant will run into a loss. Consider if the money you put into
buying the ingredients and preparing a dish is less than the price at which you are serving it
to your customers, won’t make your restaurant business suffer? Of course, it will! The
restaurant industry is extremely volatile, and here any mistake can cost you a lot more than
what you can expect. Hence, recipe costing should be done, taking into consideration the
input cost of each dish, so that you always have an edge in making a profit.
Recipe costing, in simpler terms, is essentially calculating the cost incurred in
preparing a particular dish. It takes into account the exact amount and cost of the stock
consumed in making the dish. The main thing to remember while doing the recipe costing is
keeping the edible portion, that is the amount of food prepared you are going to serve in
one dish, in mind.
Why is Recipe Costing Important?
The primary reasons that make recipe costing extremely important are:
● Recipe costing helps you know how much food cost is incurred to prepare a dish.
This gives you a clear view of how much you can earn per dish.
● It plays a significant role in deciding the selling price of the items on your menu. If
the food cost of an item is high, it just makes sense to sell it at a higher price to
garner profit.
● It tells you when to reduce a recipe cost. If you keep up-to-date with your costing
and see that you are going beyond your target cost percentage, you can easily
plan how to reduce the costs.
● It gives you an insight into the dish’s profit margin which you can, in turn, use to
promote the high-profit items through suggestive selling and promotions
How to Do Recipe Costing?
Confused about how you should go about calculating your recipe cost? Below we have
mentioned five steps, following which you can cost your recipes just right that will help you
bolster your overall profit.
1. Write down the Ingredients and Their Quantities
Make a list of all ingredients used in the recipe and state what the weight and measurement
of each component used. When you have the menu at hand, one of the first things that you
need to do to ensure that you cost your recipes right is write down all the ingredients that
go into making each dish. Once you have a well-designed menu and have written all the
elements required, you need to deliberate regarding the quantity of each component. For
example, if you have a burger on your menu, you can break down the ingredients that go
into it, such as, the buns, mayonnaise, patty (break up the ingredients that go into making
the patty), spinach, the veggies. Mention the amount of each ingredient you will be using.
Sample
2. Fill in Prices for the Ingredients
In this stage, you need to determine what the cost is of each ingredient as it is sold as a unit
in the store. You need to look for the total price of each item, not taking into consideration
about the costs of the exact amount of the ingredients that goes into the dish. Here, you
also need to consider the Edible Portion of the raw materials. This can be done by
calculating the Yield of the items. For instance, if you purchased 5 kg of onions, you need to
figure out the quantity that can be consumed, which excludes the peels .
3. Calculate the Prices of the Partial Items
Divide the weight/ measurement of each ingredient used in the recipe by the weight of the
unit it is sold in and multiply it by the price of the unit as a whole. This will determine the
cost of each ingredient used in a particular dish
4. Add It All Together
Once you have the individual amount of each ingredient that goes into making a dish, you
can easily add all these amounts. This step will help you determine the cost of the entire
recipe.
5. Extract the Cost of Each Serving
Divide the cost of the entire recipe by the number of portions that it serves. This will
determine the cost of each serving.
Sample
Step 1
Write down your recipe, including all the ingredients and their quantities,
as well as the average yield. It helps to convert the quantity to
measurable equivalents.
Step 2
Determine the price of each ingredient and calculate the cost per recipe.
Simply divide the ingredient price by the total volume and multiply it by
the equivalent measure in your recipe.
Example:
375 ml of cooking oil costs P20. So P20 divided by 375 ml multiplied by
30 ml (from the recipe) equals P1.60
Step 3
Add up the total cost of the ingredients per recipe to determine the total
recipe cost.
In our example, the total food recipe cost would be P17.86
Step 4
Divide the total recipe cost by the total yield to get the cost per serving.
Since our recipe example will yield 4 servings, then our cost per serving
will be P17.86 divided by 4 which is equal to P4.47
Step 5
Now add your mark-up to the cost per serving. If we’ll follow the simple
pricing strategy I wrote before, then this would be considered as a make-
and-sell item that requires 130% profit margin.
So from our costing template example, one order of scrambled eggs in
my food business would cost P10.27 (or I can round it up to P10.50)
What is the basis of the 130% profit margin?
It’s just best practice as told to me by friends who are in the food cart
business. They say that the “100%” covers for the production cost and
the “30%” is your product cost mark-up. I believe that there’s no
economic basis for that figure.
And of course, this is just one of the many pricing strategies you can do.
After all, there are still other factors and business expenses to consider.
