How to Accurately Cost Out a Recipe

If you’re deciding your menu prices without calculating your food costs, you may be setting yourself up to fail.
recipecost
Simply monitoring inventory can help reduce expenditures but try recipe costing to cut expenses to an all time low. (Photo: Evgeny Karandaev/Shutterstock)

Restaurants have some of the slimmest profit margins in business, so owners are always looking for ways to reduce costs and make more money. Implementing green initiatives and monitoring inventory can cut down on expenditures and waste. But one seemingly obvious solution that’s often left out of the equation is recipe costing.

“I’ve worked with many chefs who just look at the ingredients and eyeball what the cost is and what the selling price should be,” said Stephen Zagor, dean of business and management programs at Institute of Culinary Education. “It’s probably one of the most overlooked and most important processes for becoming a profitable business. But because it’s not glamorous or creative, it gets back-burnered.”

steve-zagor

“Recipe costing is what makes a profitable restaurant profitable.” -Steve Zagor (Photo: Steve Zagor)

While it can be tedious and time-consuming, calculating the total cost of your ingredients and the portions you sell to customers can highlight inefficiencies, help you better manage your inventory and purchasing and price your menu in a way that supports your expenses.

Related: Leave Off the Dollar Sign to Increase Restaurant Sales

“As purchased” versus “edible portion” amounts

To start, it is crucial to first understand the cost differences between what you purchase and what customers eat. In the industry, two terms to know are “as purchased costs” (APC) and “edible portion costs” (EPC), according to Zagor.

Say you buy a dozen eggs for $2 from your vendor, and you’re using two eggs for a recipe that serves 10 people. Your APC would be 33 cents for those two eggs ($2 / 12 = 16.6 cents, 16.6 cents x 2 eggs = 33 cents). APCs are associated with the cost of an item as it comes through your door.

But when you’re calculating a recipe cost to determine what to charge, you cannot stop with your APC. You need to calculate your EPC. If your egg recipe serves 10 people, your EPC would be 3 cents for eggs per serving (33 cents / 10).

Once you have calculated the EPC of all your ingredients to get an EPC for the whole recipe, you can determine what to charge guests.

EPCs can also illuminate menu items that involve very high food cost percentages. If you’re serving a steak entree that costs $10 to make per person and you’re charging $15 for it, your total food cost percentage for that dish is a whopping 67 percent (EPC / menu price = food cost percentage). Maybe it’s time to charge more for the dish or figure out how to lower your recipe cost.

Related: How to Change Your Restaurant’s Menu

Factor in yields

salsa

Without incorporating yield into your costing, you may end up with small discrepancies that can add up to a much larger cost. (Photo: Nataliya Arzamasova/Shutterstock)

There’s one more piece of the puzzle. Since what you buy isn’t always what you use, you need to factor in yield — the percentage of a product that is usable in your recipe.

“What you’re purchasing is not what you’re selling,” Zagor said. “It could be loss through trimming, cooking or waste. Yield is an enormously powerful piece of the puzzle because it can it can change the cost of that item by a lot.”

For example, some proteins yield only 50 to 60 percent usable meat. If your recipe calls for two pounds of pork without fat and you have to trim 40 percent of each pound of that fat, your recipe requires you use and pay for more pork.

“Basically, if you’re buying something with a 50 percent loss, you have to buy twice as much,” Zagor said.

How does yield factor into recipe costing? Take this example:

Say you need four tomatoes to make salsa that serves four guests, and each tomato has an APC of $1. You calculate your yield to be 80 percent because you weigh as you go and find that you are discarding 20 percent of the tomatoes’ weight in trimmings (to calculate: edible portion weight / as purchased portion weight = yield percentage). You use some more tomatoes to get to the weight you need for your recipe.

To take yield into account when calculating your EPC, follow this formula:

APC / Yield percent = EPC

$1 / .80 = an EPC of $1.25

Since you are using four pounds of tomatoes, you would multiply this $1.25 EPC by four to get the true cost of tomatoes in your recipe: $5.

Without incorporating yield, your edible portion cost would be only $4. While that missed $1 might not seem like a lot of money, over time it can result in a lot of discrepancies, particularly when it comes to managing your inventory.

Zagor said some kitchens calculate their own yields while others rely on approximate standard yields for fruits, vegetables and proteins (such as this one from the Culinary Institute of America).

If you’re throwing away parts of products and not using them in other recipes when you can, you’re essentially throwing away money. Try to incorporate them in other recipes (and don’t forget to cost them again).

Pay attention to minor ingredients

resized-spices

Remember to factor minor ingredients into your recipe costing, such as salt, pepper and cooking oil. (Photo: yari2000/Shutterstock)

Another way to get a more accurate recipe cost is to pay attention to Q factor, Zagor said. These are the small things you don’t necessarily think to charge a customer for, such as condiments on tables, complimentary bread baskets and salt, pepper and cooking oil that are used behind the scenes.

“These costs have to be factored into all of the major items to get a true, accurate cost,” Zagor said.

Calculating the Q factor can seem even more daunting than calculating yield. Zagor’s advice is to track what you spend on these items over a period of time, then look at how many entrees (you could do all of your entrees, or just the ones that use these Q factor items the most) you sold over the same period. When you divide what you spent by the number of entrees, you’ll have an allocation amount that you can add onto your menu costs.

“So every entree would have a small amount built into the menu cost,” Zagor said. “For a hamburger it could be 25 cents or at a fine dining restaurant it could be $4 to $5 added to the menu price of an entree. Some restaurants simply increase the recipe cost by a small percent to include the Q. The thing to understand is that everything gets costed — not just what’s on the plate.”

Standardize your portion sizes

Calculating your recipe costs and making your ingredient ordering more accurate as a result is all well and good, but if your chefs aren’t following portion sizes for these recipes, you’re wasting your time.

Zagor recommended checking portion sizes as they come off the line (sending over- or under-portioned plates back if you need to) and occasionally pulling plates off the line to weigh items.

Every owner and chef who wants to get serious about controlling costs should standardize portions by using ladles, measuring cups and servingware, as well as portion scales at all cooking stations.

“To do things right, we’re a more scientific business than we think we are,” Zagor said.

Related: Restaurant Owners: Are Your Portions Too Large?

Keep updating your costs

Once you’ve done the work of calculating all of your portion costs, Zagor advised keeping those calculations up to date.

Do this by revisiting your calculations at least every quarter, but especially when costs of your ingredients rise or fall. Some ingredients’ costs soar when they’re out of season, while others rise because of bad growing conditions, shortages and blights (shortages in 2014, for example, caused the price of limes to go from $20 a case to more than $100 a case).

Zagor said to also pay attention to the quality of products coming in your door. If you’re paying for your beef to be trimmed in advance and it’s arriving half-trimmed, talk to your purveyor. If you’re getting loins of swordfish, which require you to remove small dark veins before cooking, and you notice you’re getting larger veins over time, it might be time to revise your yield for swordfish.

“Once you have a recipe cost, it doesn’t mean it’ll be that way all the time. Yields are a flexible area you need to be aware of.” -Steve Zagor

As for how you calculate and store your recipe costs, Zagor said restaurant owners need to find a system that works for them. Many chefs and owners use Excel spreadsheets, while others use software such as NCR Console, which can track recipe costs.

When it comes to recipe costing, the important thing is just to do it.

Said Zagor, “Recipe costing is what makes a profitable restaurant profitable.”

Want A Demo?

Sign up for a POS demo from NCR Silver today.

Let’s Connect

Have a direct line of communication with NCR Silver and get the latest news on the social media site of your choice.