What is Recipe Costing?

Simply put, recipe costing is exactly what it sounds like: figuring out all of the costs involved in creating an individual recipe or dish from start to finish.

For chefs and restaurant owners, knowing how to cost (and thereby price) recipes is absolutely critical, as the cost of food and ingredients is typically one of a restaurant’s top expenses.

A successful restaurateur knows, to the cent, the cost to purchase, prepare, and serve every item on their menu, as well as how to adjust that pricing for seasonal price fluctuations.

Food Cost vs Recipe Cost

Just a quick note, as these two terms can overlap and are often confusing. 

In comparison to “recipe costing”, “food cost” is a more general concept related to the overall cost vs. profit margins for your entire menu and is one category in your restaurant's overall operating costs.

If you have a number of dishes that use a specific ingredient, say black truffles, and your ROI on those dishes is not meeting your goals, then it may be time to take a look at either finding a lower-cost provider of black truffles (thereby lowering your food cost) or adjusting your menu or recipes accordingly to use less of them, or increasing the price on your truffle dishes. 

How to Calculate Recipe Cost and Food Cost Percentage for a Recipe

But wait…it’s not quite that easy.

The recipe cost, or “food cost” percentage is an industry-standard for showing your food cost in relation to how much money you’re making. However, to understand what you’re really spending requires two numbers:

“Ideal Recipe Cost” & “Actual Recipe Cost”

Ideal recipe cost is what everything costs on paper, to make a dish, where there’s no waste or loss factored in. 

Think of ideal vs. actual like this… let’s say you’re going to bake 10 apple pies. A 10kg case of apples costs you $40, with an additional $20 for the remaining ingredients.

Ideally, you’ve spent $60 to make 10 apple pies, making your food cost $6 per pie. 

However, once you’ve peeled and cored the apples, and removed some bad spots, etc., you only have 9kg of apple slices, which means you can only make 9 apple pies.

Now you’ve spent $60 to make 9 apple pies, so your actual food cost is $6.66 per pie, a 10% increase over your ideal cost.

Typically, you want food cost to be around 25% of what you charge for the dish (remember, you still have rent, utilities, and staff to pay!) 

So, if you cut that pie into 8 slices, your cost per slice is roughly $0.83, so you need to be charging at least 4 times that ($3.33 per slice or $26.64 per pie) to make a profit on each sale. 

 

Why Should I Cost Recipes?

Costing recipes is a critical component in the financial success of operating a restaurant.
Knowing both your ideal and real recipes costs will help you:

• Compare your pricing with your competition to ensure that you’re not under or over-selling.
• Plan and layout menus to focus promotion on your highest ROI (return on investment) items.
• Understand how your current clientele values an entrée or dish, and adjust accordingly (price, appearance, serving size, etc) to improve sales.
• Maintain a balance of basic ingredients across your entire menu, without overstocking and waste.

Controlling Recipe Cost

Once you’ve calculated your food costs and investigated any anomalies or issues, you’re on the path to better controlling them. There are hundreds – if not thousands – of ways you can go about reducing your costs and boosting your profits.
Here are some tips:

• Minimise waste through proper storage, handling, and menu planning.
• Track ingredient costs annually to mitigate upcoming increases by ordering in advance or adjusting menus.
• Monitor the amount of food returning on plates for portion control, especially higher-cost menu items.
• Don't be afraid to negotiate with vendors. There’s been so much fluctuation in our industry in the last two years and, unfortunately, a lot of businesses, both restaurants and vendors were forced to shut down or adjust their business model. Keeping good and valuable customers can encourage a little flexibility in pricing.
• Plan seasonal menus to take advantage of which ingredients are most available (and cheapest) every month. For example: December is typically the best time of the year to get a good price on strawberries. In other words, financially speaking, offering that fresh shortcake in June might not be your best option. 
• Organise your pantry and keep track of usage – knowing how much you’re going to need ensures that you only buy it when you need it. Redundancies and waste come out of your bottom line.
• Take advantage of software and systems designed to improve restaurant efficiency.  

To meet your profit goals, you have to first meet your spending goals. Recipe costing is a big part of that.

It’s also a big pain in the neck, requiring a lot of time, effort, and tracking.

To help you take some of the hassles out of the process we’ve designed this free recipe food cost calculator.