Restaurants and Recipe Costing: A Quick Primer

Recipe_costing_restaurantsWhen creating your restaurant’s menu it’s important to determine the true cost of an item before establishing a final price point. That means it’s time to engage in some recipe costing.

Accurate recipe costing is a must to ensure the best profitability from your menu, and for deciding which items will take precedence when developing its layout.

As a bit of a companion piece to our menu engineering post, let’s look at a few important points to consider when costing out recipes.

Are you including everything?

Are you factoring in the cost of any garnishes (e.g. parsley, lemon wedges) that accompany the dish? What about the cost of any oils used for frying the meal? One way to calculate that is to determine the cost of your average monthly oil use and divide that number by your monthly average of dishes sold. Take that number and add it to the cost of your dish as part of your recipe costing.

Determining Yield

Next, let’s define a few important terms we’ll work with.

As Purchased Cost – The price you paid for the product(s).

As Purchased Quantity – Weight or volume of purchased product, before preparation.

Yield Percent – Percentage of the As Purchased Quantity that is considered usable/edible.

Trim – The volume/weight of waste from preparation. (e.g. cutting ends off a vegetable)

For one of the easier examples we’ve found let’s turn to Chef Kelso:

“You purchased 10 pounds of apples. After peeling, coring, and slicing the apples, you end up with 2.4 pounds of trim. What is the yield percent of the apples?

Trim = As Purchased Quantity – Edible Portion Quantity, so
Edible Portion Quantity = As Purchased Quantity – Trim
Edible Portion Quantity = 10 pounds – 2.4 pounds
Edible Portion Quantity = 7.6 pounds

Yield Percent (in decimal form) = Edible Portion Quantity  /  As Purchased Quantity
Yield Percent = 7.6 pounds / 10 pounds
Yield Percent = .76
Yield Percent = 76%

Make Sure to Work With Edible Portion Costs

Edible Portion Cost is generally considered the best figure to work with while costing recipes.

Continuing with Chef Kelso’s apple example, let’s define Edible Portion Cost.

Edible Portion Cost – As Purchased Cost   /   Yield Percent

“You purchase a case of apples for $80.00. There are 100 pounds of apples in a case. What is the edible portion cost per pound of apple given that the yield percent of an apple is 76%?

Edible Portion Cost = As Purchased Cost   /   Yield Percent
Edible Portion Cost = $80.00 / .76
Edible Portion Cost = $105.263
Edible Portion Cost per pound = $105.263 / 100
Edible Portion Cost per pound = $ 1.05263
Edible Portion Cost per pound = $1.06 

Determining Total Costs and Margins

Add up the appropriate Edible Portion Costs to get the total cost of your recipe. Determine the cost of that recipe per portion by dividing that total by the number of portions it serves.

So if your recipe’s cost is $5.35 and it can serve 10 portions, your cost per portion is $.54 (we rounded up). Your margin per portion will equal your menu price  –  cost per portion. So if you’re selling this $.54 portion for $2.50, your margin (or gross profit) per portion is $1.96.

How Much to Charge?

In the above example, $.54 is the total cost per portion. It’s currently selling for $2.50 which means your food cost percentage is 21.6% ($0.54  /  $2.50).

Your ideal selling price (ideal, not mandatory, do what you wish) would be your Cost Per Portion / Desired Food Cost Percentage (the decimal form of it). You’ll have to determine what you want your food cost percentage to be, ideally. Let’s say you want it to be 35%.

So:

Cost Per Portion (0.54)   /   Desired Food Cost Percentage (0.35)

Ideal Selling Price = $1.54  

Be sure to have a look at your competition. Maybe your current price of $2.50 is the going rate, and that 21% food cost is great as is.

While recipe costing is important, always keep in mind that gross profit dollars are still where it’s at. So refer back to the basics of menu engineering to focus your promotional efforts on your highest performing dishes.

For more restaurant best practices, be sure to download the free ebook below. 

Restaurant Cost-Saving Practices

 

This post originally appeared on FoodTender.com’s Restaurant Strategy Blog.

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