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Module 2: The Importance of Counting Costs

Here we look at 3 major costs incurred in a restaurant:

Labour Costs

Labour Costs

  • Labour costs comprise salary, allowances and fringe benefits for employees.
  • Fringe benefits include health insurance, education reimbursement, childcare and assistance reimbursement, cafeteria plans, employee discounts, personal use of company owned vehicles and other similar benefits.

Overhead Costs

Overhead Costs

  • Overhead costs, on the other hand, refer to costs that are not classified under labour and food cost.
  • This includes rent, utilities, taxes, marketing and advertising, office supplies, equipment, training, etc.

Food Costs

Food Costs

  • Food cost is the cost of all edible ingredients served or sold to customers.
  • This comprises the costs for fruit, vegetables, meat and all ingredients used in food preparation.
  • Food cost is also known as your direct cost and refers to the cost of an actual product being sold.
  • Because the quantity of dishes which are sold may vary and the cost of buying ingredients may fluctuate in comparison to a forecast, your direct cost will also change from time to time.

Making the Most of Food Cost

Because food tends to lose weight as it goes through the cooking process and also because food perishes with time, we have to make the most out of food cost. It is also important to consider the portion of food that will be discarded through preparation, peeling or de-boning.

The Challenges of Minimising Food Costs

1. Food is highly perishable

Imagine ordering enough fresh seafood to prepare 100 servings but only having 50 diners in the following two days. The other 50 portions will be wasted. It’s therefore important to be conscious of the quantity of food you purchase and produce to avoid unnecessary food costs.

2. Food is seasonal

The price and quality of ingredients will vary throughout the year. Purchase ingredients that are in season to take advantage of fresh produce and better prices because of the increased supply.

3. Food is subject to pilferage

Theft occasionally happens in some kitchens and therefore adds to food cost. Control this by monitoring your staff and consider your current employee benefits to discourage stealing.

4. Food changes form through preparation

Just as dry pasta absorbs water and increases weight when it’s boiled, all ingredients change form during processing and cooking. By monitoring these changes and finding the best way of handling and processing the food, you can maximise yield.

5. Food may be purchased in different forms

A chef often has many options as to what form of food to buy. These decisions have to be made carefully to make the smartest choice. An example would be buying a whole fish as compared to just a fillet. While the latter would cost more because it has been prepared, less time would have to be spent preparing the dish for use in the kitchen. A whole fish would however be cheaper.

Achieving Quality and Low Cost

Set targets for the food you produce, considering both the quality and the preparation cost.

  • Quality refers to the characteristics of the food served such as flavour, consistency, texture, etc.
  • Cost relates to the monetary value of the food you prepare.
  • Create a target cost. This is usually at 30 – 45% of food selling price.
  • If cost targets are not met and the selling prices are high, customers may not come to your restaurant.
  • It is important for every kitchen staff member to be cost-conscious and know the basics of food costing.


Tips on Reducing Costs

We’ve discussed how a chef can improve cost efficiency in a restaurant. Now, here’s a look at some other ways to reduce costs that didn’t fit into previously discussed topics.

  • Use ingredients that are in season
  • Learn from your suppliers about market conditions, supplies and cost-effective suggestions
  • Make the most of regional dishes as locally sourced ingredients are usually cheaper
  • Be a smart buyer and consider the quality and amount of ingredients you buy
  • Explore the use of common ingredients across several dishes as an ingredient used only in one dish can be a loss maker

Congratulations, you’ve completed the 3 Major Costs & How To Reduce Them topic!

Continue on to the next topic or pick a related topic from the Importance of Counting Costs module, or go back to the Chefmanship Academy modules page.

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