How to Calculate Recipe Costs for a Restaurant Business? 

Calculating the recipe cost for a restaurant business is essential to understanding the overall food cost and mentioning the price in the menu accordingly. Calculating the recipe costs involves breaking down the recipe item by item and estimating the cost of each ingredient. 

Although it sounds like a complicated task, it is an integral part of determining your profit margin. You can also track how the supplier’s prices have increased so you can change the pricing of your dishes accordingly. Are you wondering how to calculate the recipe costs, then this blog is for you. 

How to Calculate the Recipe Costs? 

Calculating the recipe costs is quite simple. Let’s understand the steps. 

Step 1. Make the List of Ingredients. 

First, you must list all the ingredients used in the recipe in a listicle format. List the ingredients in the format that came in, like mention a jar of pickles if you bought a jar for $3. It doesn’t matter how much you use it in the dish. 

Step 2. Write the Purchase Price of the Ingredients.

Now, next to the name of each item, mention its purchase price. Then, besides the pricing, add another column which contains “quantities per pack,” and you will have to put down the number of servings per jar or the weight of the food item you initially purchased.

Step 3. Find out the Price Per Unit or Price Per Pound. 

Find out the “price per item/unit” by dividing the total price by the total number of units. Here’s the formula. 

Price per unit = Total Price/Total Number of Units

For instance, the price of each pickle would be 30 cents if the jar of 10 pickles costs $3. The same goes for calculating the price per unit weight. Take the total purchase price and divide it by the weight of the item. Let’s say the cost of 2 pounds of any item is $10, then the price per pound would be $5 (10/2).

Step 4. Multiply Price Per Unit/Pound with Amount of Ingredient Used. 

Now, once you know the price of the single item, multiply it by the number of such items used in the dish, and multiply the price per pound by the number of pounds used in the recipe.

The total cost of the pickle used in the recipe would be $1.2 if 4 pickles are used. When talking about the items in pounds, if 0.25 pounds is used, then we will multiply this by the price per pound, $5, which will turn out to be $1.25 (0.25×5). Now, add up all the values of the ingredients, and you will have your final recipe cost.

Ideal Cost of Ingredients in Total Price of the Dish

The thing that makes it most complicated is that most food items are sold by the containers or by the weight. You will have to take the percentage of those food items per serving to calculate the exact price of this variable. For instance, you will have to calculate the price of one apple from a bag of eight that was used in the dish. For more strategies to streamline your costing and operations, check out How to Improve Restaurant Operations Management.

Now, the most important thing to remember is that the cost of the ingredients should be 1/3rd of the price on the menu. 

Let’s simplify this using an example. The total cost of ingredients of a dish should be $4, if the entire plate is sold for $12. The rest of the amount will be for other expenses, like labor, bills, and others, and you have to cut your profit as well. 

So, a small decrease or increase in the ingredient costs can significantly alter the profit margin. This will help you make well-informed decisions before using imported fruits and vegetables or local and fresh groceries. 

Things to Consider While Calculating Recipe Cost

Let’s understand the things that matter when it comes to calculating the recipe costs.

1. Labor Cost

An important factor in evaluating the recipe costs is whether it takes too long to prepare on a busy night at the restaurant. Your kitchen staff may be unable to complete other orders as quickly if a large number of customers order the meal. Try to combine different cooking techniques, conduct more prep work ahead of time, or charge more to compensate for the larger amount of the cost that labor consumes if the recipe involves more labor than the normal meal.

2. Not ‘Overlook’ Extra Cost

Don’t forget about other food costs, such as the gratis bread and butter you serve at each table or the rare free birthday dessert, while it’s simple to put a financial number on the ingredients in the dish. Frying oil and seasonings should also be considered, however in moderation in each dish. To determine these expenditures, split your monthly usage of the food item by the average number of dinners ordered per month and then add that to the cost of the dish in question.

3. Optimize your Menu

Recipe pricing also affects menu engineering, a critical technique for planning and structuring your menu to maximize profits. Menu engineering maps the profitability and popularity of menu items, allowing you to decide which to promote, change, or retire.

You must first calculate an accurate recipe cost to estimate the appropriate menu price for your profit margin. As you explore changing the prices of various menu items, you may utilize your recipe costing information to experiment with different portion sizes or ingredients to keep the item price while increasing the margin.

4. Manage Restaurant Inventory to Find Accurate Pricing

Recipe and food cost tracking inform restaurant owners and operators about how their teams manage ingredient utilization. You can reduce food waste to optimize your restaurant’s food expenditure.

Restaurant inventory management entails keeping track of the ingredients that come in and out of your restaurant. Advanced tools such as food waste trend reports, prep production statistics, and recipe costing by location or period can continue to assist you in identifying irregularities and determining the source of the problem in your kitchen.

5. Utilizing Excel and Automated Software for Cost Calculations

Build a food cost spreadsheet in Excel to simplify tracking the recipe costs of all the dishes. The spreadsheet will contain the optimum food cost for each menu item based on its ingredients, portion size, and current price.

The spreadsheet will contain five columns: ingredients used, total price of the ingredients, quantity of the item used, unit cost, and total cost. The best way to start is to measure all the ingredients you are using and type them down so you can easily calculate the price.

Hence, you can easily calculate the pricing and change the values accordingly. However, the manual process of changing the pricing becomes tedious, and that’s why you can switch to an automated restaurant inventory management system.

An automated restaurant inventory management system will allow you to keep track of current recipe costs. Updated prices will be immediately taken from invoices as they arrive if your ingredient prices vary seasonally or you decide to change vendors. That means spending less time manually entering data and more time running your business and serving happy consumers.

6. Analyze Real and Theoretical Cost

Suppose your restaurant inventory management software is coupled with your accounting and integrated POS system. In that case, you can also map your inventory to sales and watch your theoretical ingredient usage over time.

Actual versus theoretical (AvT) food cost tracking is an effective method for controlling your food costs. You can calculate the theoretical food cost or how much you should have spent creating menu items over a certain period (assuming no mistakes or waste) once your recipe prices have been standardized and entered into your restaurant management system.

Then, you can compare this potential cost to your actual food cost—what you paid based on real-time sales and inventory levels.

7. Monitoring and Adjusting Recipe Costs

Your restaurant may have experienced vendor swings in the past year, adding growing food expenses to your list of operating issues. Start by looking at your best-selling or most expensive items first if increasing food costs are inflating your food cost percentage.

You have a variety of choices for dealing with rising food expenditures. Examine your recipes to see if you can change the portion proportions or use less expensive items. You can also utilize your food cost tools to assess your preparation efficiency.

Finally, you have the option of changing menu prices to match the new food cost. Your decision will vary depending on the menu item, but having recipe costing information on hand will guarantee that you make a data-driven decision.

Wrapping up,

Understanding how to cost out a recipe was formerly an optional operational technique, but in today’s competitive world, it is now required for a viable firm. Manage your restaurant group’s recipe expenses with automation and an implementation strategy to optimize your profit margin across your menu. Manually calculating all food costs is one approach, but if you want to make kitchen operations more efficient and less time-consuming, switching to professional restaurant software may be the answer. For seamless operations and to ensure consistent workflow, explore Restaurant Management Software.