Determining menu prices is crucial to keep in mind when wanting to succeed as a business.
When calculating food costing, you need to ensure you charge customers the right amount of money as it will always directly impact the profitability of your restaurant.
Module 2: The Importance of Counting Costs
- Food costing is important to know as it has a direct effect on the profitability of a restaurant. It is the cost of your ingredients and does not include other costs, such as labor and overheads. It is essential in determining whether food costing targets are being met.
On Basic Recipe Costing
Understanding the basics of recipe costing is important so that you can:
- Know how much food cost is incurred on each recipe. This gives you a clear view of how much you can earn per dish.
- Understand how to correctly price your dishes to achieve a target profit.
- Study the way your competitor prices their dishes against an industry benchmark.
- Know when to reduce a recipe cost. If you keep up-to-date with your costing and see that you are going beyond your target cost percentage, you can easily plan how to reduce the costs.
- Determine each menu item’s profit margin and decide which ones to promote through suggestive selling and promotions.
Food Costing Tools
While it might seem difficult in the beginning, you’ll be setting up your restaurant to be in a better financial position after using the following metrics. These are the tools and calculations that are important in deriving your food costs:
- Standard Recipe: Costing based on a standard recipe makes it easy to guide kitchen staff or food preparation. It also helps to compute food costs based on the servings that are needed. It is a basis for food costing.
- Up-to-Date Ingredient Costs: Current prices should be the basis of costing, thus the need to do a price check on ingredients from time to time is necessary.
- Recipe Cost Sheet: For recording data and all information about the recipe, such as current unit cost, actual ingredient cost, and cost per portion. Knowing your recipe cost plays a significant role in your selling price and can help you in the future if you need to reduce a recipe cost due to the tracking.
Calculating Recipe Cost
How to calculate the food cost for each Standard Recipe?
- Step 1. Fill up the Recipe Costing Sheet with information based on the standard recipe to be based on a current price list.
- Step 2. Indicate the latest purchase cost of each ingredient based on a current price list.
- Step 3. Compute the actual cost of each ingredient.
- Step 4. Add the actual cost of each ingredient to get the total recipe cost.
- Step 5. Divide the total recipe cost by the number of portions to get the cost per portion.
Recipe Cost Sheet
For recording purposes, create a recipe cost sheet for each of your dishes. Here is an example.
As you can see, it’s an extension of the Standard Recipe, providing costing details.
Once you have your food costs, you can figure out the selling price of your dishes. The basic formula is:
Selling Price = (Food Cost + Labor Cost + Overhead Cost) + Profit
Your selling price should include all costs plus the profit you would like to earn.
What Should the Food Cost Percentage of Your Selling Price Be?
To compute the selling price, we need the food cost to only be a certain percentage of the selling price.
The amount varies from one restaurant section to another and is influenced by other costs, such as labor, overhead, and target profit. It generally falls within the profit of 30% to 45%.
Food Costing in Practice
Here is an example to show how to find the selling price of a dish:
- A restaurant has a target food cost percentage of 33%.
- Their newest recipe was calculated to have a food cost of ₱25 per portion.
- Applying the 33% rule, the target selling price = ₱25 divided by 0.33 = ₱75.75
Given this number, the restaurant can decide on the final selling price by considering other factors such as competition, volume, and labor costs.
It is important to ensure your food costing targets are being met when calculating, plan how to reduce overall costs, and keep up-to-date with your restaurant's costing.
Congratulations, you’ve completed the Food Costing 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.