What are Steps in Calculating Recipe Cost

One of the best ways to make a successful restaurant is to provide outstanding food at a limited price. It will help your restaurant stand out in the competitive restaurant business market. So, while deciding on the restaurant menu, it is essential to calculate the recipe cost. It will help understand the food cost and set an ideal menu price. As we know, recipe costing is directly connected to restaurant profitability, so every food business owner should know what are steps in calculating recipe cost and how to do it properly.

What is Recipe Costing

Recipe costing calculates the cost of each ingredient used in a particular dish or an individual menu. It involves breaking down all the items and finding out the cost of each ingredient and the estimated overall cost of a single serving. 

Most people think calculating recipe costs is highly complex, but it is not true. In the recipe costing process, operators itemize the cost of every ingredient used in a particular dish, then adjust the item's cost for portion size, and finally add all the amounts to find the total cost of a recipe. 

Moreover, some other essential factors help to calculate recipe costs accurately. These include up-to-date inventory, real-time vendor prices, standardized recipes, etc. Advanced restaurant POS or recipe cost estimator software can also help in calculating recipe costs or manage menus.  

Why is Recipe Costing So Important?

Recipe costing is important for running a successful restaurant and making the restaurant business more profitable. When restaurants set menu prices, they can not randomly place them. They need a proper recipe cost calculation to create an ideal menu price that is friendly to customers. It is considered the best way to measure the profits in the food and beverage industry. 

An accurate ingredient cost calculator helps restaurant owners, back-of-the-house staff, or restaurant managers to make an ideal decision on portion sizes, plate cost, and inventory management. Moreover, food cost is not only limited to calculating the cost of food ingredients; it also covers the labor and time requirements of preparing and serving the food. 

On the other hand, recipe costing helps to find opportunities to reduce food costs and increase the efficiency of food production. Accurate recipe costing helps the food business in many ways, such as using ingredients more efficiently, reducing food waste, negotiating prices with suppliers, etc. 

Once you understand the cost of the recipe, you can give your customers a better dining experience without overspending. It will also help to adopt different strategies according to market conditions, which is important for long-term success in the food and beverage business.

What are Steps in Calculating Recipe Cost: 7 Best Strategies

Understanding recipe costing significantly lowers your investment and maximizes your food or restaurant business profits. It should be done accurately so that it does not affect food quality. As we know, in the food business, quality and taste are the things that can not be compromised. So, if you are a running food business owner or planning to start a food or restaurant business, walk with us and learn about how to calculate food cost for a recipe.

1. List all the Ingredients

The first and most important task of calculating a recipe's cost is to break down the recipe and list all the ingredients. While making a list, you have to ensure that all the ingredients are listed and that no ingredient is missing, no matter how small or low the proportion. Only then can you get the most accurate result.

2. Determine Ingredient Quantity

After listing all the ingredients, it is time to determine the quantity of each ingredient. Without knowing how much ingredients are needed for an item, it is totally impossible to find out the recipe cost. While determining each ingredient quantity, you ensure that all the items have been measured using ideal measurements. Then, write down all the ingredient measurements so everything will be correct in the final calculation.

3. Figure Out Each Ingredient Cost

The next step is to find the price for each ingredient. The cost of each item should be similar to the price of the item sold in your store. While finding the cost, always remember that the price of each ingredient should be the most recent price of any item. You can also use the cost of ingredients calculator for finding the ingredient cost. 

4. Calculate Portion Cost Per Ingredient

To simplify the recipe calculation, it is essential to convert the vendor cost of every single item into the unit of measure used in the recipe. You can use the recipe costing template or ingredient price calculator to perform this computation. Calculate the difference between the unit's weight in which each food ingredient is sold and its measurement or weight. Next, increase that number by the unit's total cost. This number indicates how much each component in that recipe costs.

5. Add all the Ingredient Cost

When you have successfully done all the calculations by using the recipe cost calculator, your task is to add all the numbers. After adding all the numbers, the final numbers will show the total cost of the recipe. 

6. Calculate the Serving Cost

To determine the cost of each serving, you have to divide the entire recipe cost by the number of serving portions. This is how we can calculate the initial cost of any recipe.

7. Use Data to Calculate Profits 

You can now use your recipe cost data to calculate your profit margins. Moreover, as a restaurant business owner or a restaurant manager, you should regularly update and review the defined standard recipe cost so that you can make changes to your menu pricing. You can also use your recipe costing data to find items with higher profit margins and add promos and offers on those items to increase sales and profits.         

How to Cost Out a Recipe Using a Recipe Costing Formula

Any food business entrepreneur must know how to calculate recipe cost or the exact cost of a meal or a recipe. However, we understand that a recipe has lots of ingredients, so it becomes more difficult to calculate the actual cost of a recipe. But we can do the task easily with the help of a food costing calculator. The main purpose of plate costing is to adjust your menu price to ensure you can make money by selling recipes.

Here, we will discuss how to cost out a recipe using a recipe costing formula with an example. 

Let’s Calculate the Recipe Cost of a Burger.

List of Ingredients for a Burger

• Bun
• Ground Beef
• Onion
• Ketchup
• Tomato
• Cucumber
• Cheese

Burger Ingredients Quantities 

• Bun = 1
• Ground Beef = 10 ounces
• Onion = 3 ounces
• Ketchup = 2/3 Cup
• Tomato = 6 ounces
• Cucumber = 5 ounces
• Cheese = 1 slice

Burger Ingredients Costs

• Bun = $6.00 per packet (every packet contain 4 Buns)
• Ground Beef = $15.66 per pound
• Onion = $1.73 per pound
• Ketchup = $6.50 per gallon
• Tomato = $2.63 per pound
• Cucumber = $2.18 per pound
• Cheese = $3.27 per packet (every packet contain 10 slices)

Cost Per Ingredient for a Burger

• Bun = $6.00 per packet (every packet contain 4 Bun) = ($6.00 / 4) = $1.5 = 1 Bun
• Ground Beef = ( 10 ounces / 16 ounces per pound ) = 0.625 * $15.66 = $9.7875
• Onion = (3 ounces / 16 ounces per pound) = 0.1875 * $1.73 = $0.324
• Ketchup = (0.67 cups / 16 cups per gallon) = 0.041 * $6.50 = $0.272
• Tomato = (6 ounces / 16 ounces per pound) = 0.375 * $2.63 = $0.986
• Cucumber = (5 ounces / 16 ounces per pound) = 0.312 * $2.18 = $0.681
• Cheese = (1 slice / 10 slices) = 0.1 * $3.27 = $0.327

Sum of the Ingredient Costs

Bun = $1.5 

Ground Beef = $9.7875

Onion = $0.324

ketchup = $0.272

Tomato = $0.986 

Cucumber = $0. 681

Cheese = $0.327

Total = $13.877

So, the total recipe cost of a burger is $13.877

How to Manage Recipe Costs Effectively

Recipe costing is an ongoing process that constantly changes depending on food cost changes. So, managing your recipe cost is very important to survive in the highly competitive culinary industry. Here, we will provide some valuable information on managing your recipe cost. So stay with us and educate yourself to survive in the food business. 

1. Use the Right Tools

One of the best ways to manage your recipe cost is by using the right tools or using the food cost template. Nowadays, you will find thousands of software programs specially designed to calculate the price of a recipe. You can use this software. This highly accurate software can automate repetitive tasks using actual data and provide exact information.

2. Maximize Use of Ingredient

Maximizing the use of ingredients involves using the same ingredients in multiple dishes. This is a great way to manage your inventory and reduce your restaurant's overall cost. So, try to list menus for your restaurant where you can provide different dishes using the same ingredients. 

3. Train Your Staffs

Restaurant staff training is a term that any restaurant business owner must pay attention to. The better you train your staff, the more benefits you will get. When a restaurant has well-trained staff, they know how to deal with customers. So, when entering the food business industry, always try to hire skilled staff or manage staff training sessions. 

4. Negotiate with Supplier

Good food comes from good ingredients. So, while choosing the supplier for your restaurant, always try to select someone who can provide the best food ingredients at the lowest prices. Moreover, you can regularly interact with your supplier to maintain a healthy relationship and convince the supplier to offer cost-effective ingredients.

5. Check Ingredients Price

To manage your recipe cost-effectively, you must monitor the food market. Look for changes so that you can maintain a healthy balance between the market and your menus. 

How to Use Recipe Costing to Set Menu Prices

From the article, we have learned what are steps in calculating recipe cost. So now we can easily calculate the cost of any individual recipe. As we know, recipe cost plays a vital role in setting menu prices. Now we will learn how to use recipe costing to set menu prices or how do i cost out a recipe. Here are the necessary steps for a food costing example.

**Let's set the menu price for pasta**

1. Calculate the Recipe Cost for Pasta 

Ingredients for Pasta

• Pasta
• Tomatoes
• Cheese

Ingredients Quantity for Pasta

• Pasta = 250g
• Tomatoes = 110g
• Cheese = 50g 

Cost of the Ingredients for Pasta

• Pasta = 1000g = $6
• Tomatoes = 1000g = $3
• Cheese = 500g = $4

Cost Per Ingredient for Pasta

• Pasta = ($6 / 1000g) = 0.005 * 250g = $1.5
• Tomatoes = ($3 / 1000g) = 0.003 * 110g = $0.33
• Cheese = ($4 / 500g) = 0.008 * 50 = $0.4 

So, the recipe cost of Pasta is : ($1.5 + $0.33 + $0.4) = $2.23

2. Add Others Cost

Now you can add other costs that are involved in making pasta such as 

• Labor Cost
• Utilities
• Rent
• Equipment and other costs.

3. Calculate Food Cost Percentage

Formula: Food Cost Percentage = (Food Cost / Menu Price) * 100

Reminder: Most restaurant has aim for food cost percentage in between 25% to 35% 

4. Set Menu Price

Let's assume your food cost percentage is 32%

Menu Price Formula : Recipe Cost / Food Cost Percentage

So, the menu price for pasta: ($2.23 / 0.32) = $6.968  

Now, you can adjust your menu pricing by considering several factors such as locations, competitors, recent market conditions, customer experience, etc.  

Things to Consider While Calculating Recipe Cost

A small change in ingredients can make a big difference in taste and menu pricing. The restaurant market is where prices constantly change according to the cost of production and customer demand. Several factors have a direct effect on the calculation of recipe cost. Here, we will discuss the things to consider about costing a dish.

• Make Your Menu More Efficient

An efficient menu is a crucial term for a restaurant. It is a great way to attract new customers and allows old customers to visit your restaurant repeatedly. 

Recipe pricing is a term that significantly affects menu pricing and menu engineering. Menu engineering is a strategy used in menu structuring to make maximum profits. 

Before setting the menu prices, the restaurant owners must calculate the exact cost of a recipe to set the appropriate menu price. You may also try different types of experiments by changing the ingredient's portion sizes to see the changes in profit margin.

• Control Restaurant Inventory to Determine Accurate Prices

Restaurant inventory management is a crucial task. Most of the food industry now uses advanced restaurant POS software to manage the inventory efficiently. 

A food business owner can quickly determine ingredients or inventory utilization with the proper recipe and food cost tracking system. Proper utilization of ingredients can dramatically reduce restaurant food waste and significantly increase profits.

• Making Use of Automated Software for Cost Calculations

While making a recipe cost, it is important to track all ingredients' prices to calculate your cost easily. You can switch to an automated restaurant management system to help you track your inventory more effectively. 

The automated restaurant POS software also has many features enabling its users to manage the front and back of the house, staff management, real-time reporting, accounting, etc. Using automated software to calculate the recipe cost could be a good practice because it will provide the most accurate result.

• Adjusting Recipe Costs 

When you have enough information about the recipe cost and the current food market, you can decide how to manage your restaurant wisely. As we know, the price of food ingredients changes constantly, so it is challenging to deal with the menu pricing with the changes. Adjusting recipe costs is crucial for the food business. 

You can use several strategies to adjust your recipe cost. For example, if ingredient prices become very high, you can change the amount of portions, use the best alternative, or use the less expensive ingredients. It is a great way to adjust your recipe cost by maintaining the quality and menu pricing.

Final Thought

Exploring the new recipe is a fun and innovative process. But while making a new recipe ,it is important to know the exact cost of that recipe along with the taste. Because, in restaurants people come to taste different types of dishes so if you can not maintain a good taste with good hygiene it is quite impossible to make profits from the restaurant business. Starting a restaurant is not as easy as it looks, it takes lots of strategy, planning and hardwork. So if you are a food business entrepreneur and what are steps in calculating recipe cost is your concern then i hope you have got all your answer.