Food costing is one of the core tasks that food businesses must do regularly and accurately in order to control costs and ensure profitability. But there’s not one way to do food costing. There are many. The most important are recipe costing and menu costing.
In this article, we’ll explore what recipe and menu costing are, how they’re different, and why you must make both a regular practice in your food brand. We’ll cover a handful of topics along the way, like…
- New opportunities that accurate, real-time recipe and menu costing unlocks
- The main mistakes food brands make when costing food
- Why recipe costs are always changing—and how to keep up in your calculations
Let’s dive in.
A recipe cost is the total cost of all the ingredients used to make a single dish. Here’s an example of what a recipe cost might look like for a chicken parmesan dish.
How Do You Calculate a Recipe Cost?
To get started, you’ll first track down the ingredient costs for each component of the dish, like the chicken, tomato sauce, mozzarella cheese, breadcrumbs, and pasta base.
Here’s the first major challenge: because food suppliers don’t sell chicken by the dish—they sell by the pound—you’ll have to do some unit conversions to figure out how much money you actually spend on each dish.
For example, let’s say you buy 50 pounds of chicken breast for $200. When you look at your recipe for chicken parmesan, you see that the total chicken by weight is only 1 pound. That means you’re using 1/50 of the chicken, which accounts for 1/50 of the total cost of all the chicken. Now you can use a quick equation—(1/50)*($200)—to discover that the 1 pound of chicken used in your chicken parmesan dish costs $4. Now do that with all your ingredients.
In our experience, unit conversions are one of the things that’s easiest to make errors on for people running these calculations. We strongly suggest using a food costing tool like Galley Solutions, or using a spreadsheet to run calculations at the very least.
Also Read: Food Cost Is King In The Food Industry, So Why Is It So Hard To Figure Out?
Menu costing is the process of taking all the recipe costs for all the dishes on your menu and adding them up to find the total cost of your menu.
In our chicken parmesan example from earlier, we saw that the recipe cost of one dish was $5.56. But what if you wanted to know how much it would cost to make 20 chicken parmesan dishes? That’s where menu costing comes in.
How Do You Calculate a Menu Cost?
To calculate the menu cost, you’ll take the recipe cost of each dish ($5.56 for chicken parmesan) and multiply it by the number of times you plan on selling that dish. So, in our example, it would be ($5.56)*(20) = $110.20. Now, you’ll do that for every dish on your menu to find the total menu costs.
For food businesses that operate with precise volumes, like caterers that know exactly how many meals they will serve for an upcoming event, menu costing can be very precise. Other businesses like prepared meal companies or noncommercial foodservice operators can estimate demand for the following week or month and use that as a “menu” to get a sense for how their recipe costs add up across the entire menu over a period of time.
Also Read: 6 Things To Look For In Food Costing Software For Your Food Business
You can’t discuss recipe costing without bringing up menu costing (or vice versa). Food businesses need to use both in order to make fully informed decisions about recipe development, purchasing, and pricing.
The recipe is a core building block of business decisions. Knowing your core costs at the most granular level—per dish—is central to understanding your operation and margin. When you have accurate and real-time recipe costs, you’re able to…
- Spot rising-cost ingredients and know when you need to find a new supplier or a substitute for a lower-cost ingredient
- Price dishes appropriately to maintain healthy margins
- Keep overall food costs in check
Menu costing extrapolates these benefits across long periods. Building on top of the recipe cost data, menu costing gives a much broader sense of clarity over things like:
- Total food costs and profitability for a given event or time period
- Measuring how margins change when you swap dishes or ingredients
- Long-term trends on rising/shrinking food costs as a way to check your progress in keeping costs down
Food brands that master both recipe and menu costing are capable of making informed decisions both at the culinary and business level.
Also Read: Actual vs. Theoretical Food Costing: Why Accuracy Is Essential
Our examples of costing and simplified, and there are a few challenges that all food businesses run into when running costing exercises.
- Ingredient prices change. Prices change all the time, sometimes daily. And when prices change for hundreds or thousands of ingredients, that can mean your recipe costs are inaccurate. However, costing recipes daily is far too burdensome for brands to do.
- Unit conversions are easy to mess up. Ratio calculations used to convert units, and scale costs are prone to human error since they are typically done manually. Even when a spreadsheet is used, outdated equations can mean wrong results.
- Don’t forget about food waste. Food spoilage, trim (onion peel), and theft result in ingredients you pay for, but don’t use. These various types of waste mean, if you lose 10% of your inventory before it’s prepped, your true cost per dish actually goes up. Many forget to calculate this completely.
These challenges are why we created Galley, a Culinary Operating System for food businesses. Food costing is built into the center of our Culinary OS, with features designed to make costing easy, accurate, and real-time.
For example, vendor data connections mean your ingredient costs are updated in real-time, so you never run on old data. Unit conversions happen automatically, so you never miscalculate because of a math error. And scaling recipes to create your menu costs? Just takes two clicks.
Galley’s modern approach to food costing software is helping food brands worldwide operate with more clarity and profitability.
Reach out today to learn more.
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