Recipe Costing 101: How to Get Started 

Having a great new recipe might not mean much if you don’t have the right pricing to go along with it. Whether it’s working on a new spin on a classic dish, or coming up with a unique creation, recipe building is an essential part of running a restaurant. Recipe costing is an important aspect of recipe construction that’s often overlooked. It gives you all the data you need to make important decisions about your menu inventory, as well as the detail of the individual dishes.

A good recipe costing process can make all the difference in whether you are profitable or not. In this blog, we’ll walk you through the basics of calculating your recipe costs and making your costing process more efficient. 

 

 

How much does a recipe cost? 

The process of recipe costing involves taking apart a meal plan and then figuring out the cost for each item. You will need to add the costs of every ingredient you use into your dish’s total price. When you know the exact cost of making each dish, you’ll be better equipped to price your menu items. 

 

How important is it to calculate the cost of a recipe?

Running a restaurant successfully isn’t just about the quality of the food. It’s also about being meticulous in controlling your margins, costs and prices. In an industry where products expire and markets are saturated, keeping tight control over costs will likely define your restaurant’s ability to reach profitability. Diligent recipe costing gives more control over your inventory and how much you’re spending to create your menu. 

 

Costing ingredients: How do you start? 

The costing process can be as granular or as high level as you’d like, but keep in mind that the more detailed the process, the better the information you’ll have to make smarter pricing decisions. 

Costing a recipe is as easy as pie

• Perform a preliminary inventory count 
• Make a list of your favorite menu items and then calculate the cost per dish.
• You can choose a dish, and you will need to list all the ingredients.
• Calculate the wholesale price for each ingredient from here.

Example of recipe costing 

Let’s take a burger as an example. First, a restaurant must list the ingredients as well as their amounts to determine the price of their hamburger. This burger includes 6 ounces ground beef, 1 potato bun, 1 slice o cheese, 3 pickle slices, and 1 tablespoon sauce. 

To calculate the price of a burger, you must first determine the costs for each ingredient. Each ounce of ground steak costs $0.25. For example, if you buy 7 pounds worth of ground beef at $28 per pound, then each ounce will cost $0.25. If you multiply $0.25 by 6 (the amount of ounces used in your burger you’ll get your cost of $1.5 for the ground beef in your recipe. You’ll have to do this exercise for each ingredient in your dish.  

• Ground beef 6 ounces = $1.5
• 1 potato bread bun = $0.30
• 1 tbsp. Sauce = $0.20
• Two slices of tomato equal $0.50
• 1.25 oz. of cheese = $0.50
• Three pickle slices equal $0.60

You will need to subtract the price of each ingredient from the total to calculate the sum. This burger costs $3.6.  

 

Calculating the recipe cost

Your food cost percentage is an important idea to consider when looking into the costs of your meals and recipes. This is the percentage that measures the relation between the price of ingredients and how much revenue they bring to your restaurant. 

Restaurants will vary in the percentage of food costs, depending on how expensive their ingredients are and what they charge for their meals. Restaurants will strive for food costs between 5% and 10%. 28-35%. The main goal, however, is to keep your food cost percentage low to ensure bigger margins—without sacrificing quality of course. 

In order to calculate your food cost percentage, you’ll need to look at your overall inventory costs and your food sales. 

With this formula you’ll be able to get a holistic picture of your performance and where your food costs fall under that. 

 

Lowering your food cost percentage

One way to improve your margins is to reduce your food costs. You can do it in many different ways. 

Price increases

This will allow you to use existing ingredients without having to reduce quality. Although this may be required at times, it is important to analyze the price your customer base will pay. 

Change suppliers

Sometimes, reducing costs is as easy as looking for new vendors or finding workarounds to your existing food problems. Chain of supply for food. 

Reduce portion sizes

If increasing costs doesn’t work for your existing customer base, reducing portion sizes, or changing dishes slightly to accommodate your existing price, can be an option that keeps everyone happy. 

Alternative or cheaper ingredients

Although this can affect the quality of your dish, it could be an option if your goal is to maintain a consistent dish price and size. You have the opportunity to be creative and use similar ingredients in your dish, which will help lower its overall cost. 

Automate your inventory using technology

Sometimes it is all that you need to cut down on food costs. Automation Get it! Data directly linked to your inventory and sales that’ll show you opportunities on where you can reduce food waste and lower costs. 

 

How to calculate your perfect menu price

Although there are many options for calculating your ideal cost, the best way is to use your ideal food cost percent to figure out a price. 

The following formula will allow you to determine your optimal food cost percentage. 

 

Using our original burger example, if your burger cost costs $3.6 to make and you’re aiming to keep your food cost ratio low at 28%, your calculation would be as follows: 

3.6 / .28 = 12.86

The ideal price for your menu would be $12.86. This price will keep your food costs at 28%. If you’re looking to lower your existing percentage, this formula will give you an idea of how much you need to raise your prices to get your desired percentage. 

A gross profit margin formula can be used to return your price. The formula considers both the cost of goods and your revenue. These are financially sound restaurants The gross profit hovers between 70% and 70%.

 

Calculation of gross profit margin

 

Optimizing your restaurant’s profitability through costing 

Costing your recipe can help you make better decisions about pricing, inventory, and waste. Costing your ingredients will always involve some level of manual counting,  but it doesn’t need to be labor intensive. 

Opting for an accountant is the first step to optimizing your costs. Automated inventory management system. An inventory system that’s integrated with your Point of Sale at RestaurantThis can save you time and give you more information about your menu. You’ll be able to see accurate inventory counts with real-time automated replenishments and deductions. By knowing exactly how much you have on hand and how much you need to order, you’ll be able to keep better track of your inventory and reduceFood wasteFood and beverage costs 

Automate your inventory today and reduce your food expenses. Ask one of our expertsFind out more about Small Biz Sense.