If you’re a seasoned F&B business owner, you’re probably familiar with the practice of recipe costing. If you’re new to the industry or have just opened up your first CloudKitchens® delivery kitchen, you may still be unclear or have questions about this important topic.
So, first off, what is the recipe costing? Recipe costing is figuring out the total cost of a recipe by breaking down each ingredient and calculating exactly what amount of money your restaurant incurs in preparing a specific dish. This involves knowing exactly which ingredients—and how much—are needed to make an edible portion of that dish.
Imagine what would happen if you weren’t calculating your dish preparation costs correctly and the price being paid for that dish by your customer wasn’t enough to cover the incurred costs. Your business would be in serious trouble, right? That’s why it’s so important and why we’re taking you step-by-step on how to do recipe costing the right way.
Why recipe costing is important
Recipe costing is a critical element of your F&B business operations. Here’s why:
- When you know how the costs you incur in preparing every dish, you get a solid understanding of how much you can earn per dish.
- Once you know how much you can earn, you have a solid base for setting the price of that dish on the menu. After all, you want to make a profit!
- It provides a clear guide on when menu changes and/or recipe cost reductions are needed. If you see that a certain menu item is costing you more than expected, you can decide how to reduce the cost of preparing that recipe or remove it altogether.
- Recipe costing and knowing what your high profit-margin dishes are will help to determine which menu items to include in special promos and offers.
As we walk you through the proper recipe costing steps, it’s important to remember that the final goal is to determine how much it takes to make one serving of that dish—that is, the amount of food you serve for every order of that specific item. Let’s begin!
5 steps to do recipe costing the right way
Step 1: Write down all recipe ingredients and their quantities
Basically, dissect the recipe! Write down every ingredient and note the measurement and weight of each one. This requires looking at your entire menu and doing this exercise for every recipe you offer.
For example, if you’re a CloudKitchens® delivery kitchen that cooks up traditional Singapore food and Satay is on your menu, you’ll need to write down every ingredient that’s needed to make an entire Satay recipe.
You need to write down the type of meat (plus any ingredients needed to prepare that meat), shallots, garlic, turmeric, fennel seeds, cumin seeds, plus any other special ingredients in your restaurant’s version of the recipe requires—and their quantities. Do you serve the Satay with sauce? You’ll need to break down every ingredient of that sauce recipe and the costs too.
Step 2: Find the price for each ingredient
The second step requires figuring out the cost of every ingredient as it’s sold as a unit from your vendor or store. Here you’re just looking for the total price of each ingredient item, not how much of the item you’re using for each recipe. For example, if you purchase 20kg worth of Chicken, you need to fill in how much it cost you.
Step 3: Calculate the price of the portions used
To make this calculation, divide the measurement or weight of each recipe ingredient by the weight of the unit in which it’s sold. Then, multiply that number by the price of the whole unit. This number tells you how much each ingredient that’s used in that recipe costs.
Step 4: Add it all up
Once you’ve done step 3 for every ingredient in the recipe and arrived at a cost for the portion of each ingredient that’s needed, you can add up all the numbers. The final number represents the total cost of that particular recipe.
Step 5: Figure out the cost of each serving
To arrive at the cost of each serving, simply divide the cost of the entire recipe by the number of serving it yields.
If you’re a delivery kitchen owner, the good news is that the turn-key process of opening and operating your business lowers your costs significantly and yields higher profits much quicker than in traditional restaurants. Just remember that a miscalculation in your recipe budgeting can make a big dent pretty quickly, so be sure to stay on top of your recipe costing practice.
Using this data to find out your profits
Once you have a clearer picture of how much individual servings are costing you, you can perform a simple calculation to work out your profits. Simply take the revenue you made cooking a certain number of dishes and subtract the total cost it took you to make that same number of dishes.
- Cost of ingredients used = (amount of ingredients used/the total amount bought) * the cost of the total amount
- Cost per serving = the cost of all the ingredients used/the number of servings
- Profit = (revenue/number of servings) – (cost/number of servings)
Still feeling overwhelmed by recipe costing? Join us as a CloudKitchens® licensee, and we will guide you through every step of the way. Fill up the form below to get in contact with us!
Find the recipe costing template here.