Ever wondered how chefs and restaurant operators calculate the cost of their recipes? In the past (and even today for some), a common practice was to focus solely on the protein cost and then add a few extra dollars for other ingredients.
While this might seem like a convenient approach, it comes with a catch – it can seriously undermine the accuracy of your financial evaluations and put your business's long-term sustainability at risk.
In this blog, we will explore why it is crucial to consider every ingredient in your recipe to determine true theoretical food costs.
Lower profit margins
Let's be honest, the reason people don't price out a dish all the way is because it's hard! It's tricky to track things you prepare, and how much it costs to add only a portion to a dish.
However, neglecting all components of a dish, such as vegetables, starches, spices, sauces, and kitchen consumables, means that the total expenses incurred in preparing a dish are underestimated.
As a result, you may need to cover all the direct and indirect expenses associated with the dish, leading to a situation where the revenue generated is insufficient to offset the actual operational costs. This underpricing can erode profit margins (which are already around 8-10%), limiting the financial viability of restaurants and hampering their ability to invest in quality ingredients, staff, and overall business growth.
Imbalanced menu.
A well-balanced menu typically includes a mix of high-cost and low-cost items to appeal to a broad range of customers and maximize profitability.
If chefs or restaurant owners focus solely on the protein cost, they might unintentionally create a menu where all dishes have similar cost structures. This can result in a lack of variety in pricing, making it challenging to cater to different customer preferences and budget ranges.
Fluctuating ingredient costs.
Ingredient prices are subject to fluctuations due to seasonality, market conditions, and changes in supplier pricing. If the prices of these ingredients increase, it can result in an unexpected rise in the overall cost of the dish, leading to reduced profit margins or even losses if the selling price remains constant.
For example, let's say your menu includes a steak dish with a side of mashed potatoes. When you first price out the dish, your steak and its accompanying seasonings cost you $11.00. A side of mashed potatoes, including several dairy products, costs you $0.39/serving.
To maintain a 33% food cost, you must charge at least $34.17 for the dish.
However, due to fluctuating butter and milk costs in the last few months, mashed potatoes have increased to $0.74 per serving. Your cost per dish is $11.00 (steak) + $0.74 (mashed potatoes) = $11.74. To achieve a 33% food cost, you'll need to charge customers an extra dollar, or at least $35.22 per dish, not the initially planned $34.17.
Being off by 35 cents every serving adds up quickly. If you sell 40 of these dishes every night, that equates to a $420 loss per month, or nearly $5,000 per year. And that's just one example. You could see significant money loss if your menu is packed with protein-heavy dishes that don’t have proper recipe costing.
Customer perception.
Customers often gauge the value of a dish based on its overall composition, and by neglecting the costs of other components, there's a risk of misaligning perceived value with actual cost.
This lack of clarity can make it challenging for customers to understand the rationale behind pricing, potentially leading to dissatisfaction and a sense of disconnect. Moreover, in a competitive market, pricing that only reflects part of the spectrum of costs may position your offerings as less competitive.
Recipe accuracy.
Recipe accuracy involves measuring ingredients and the intended balance of flavors and textures. Ignoring the costs of complementary components might lead to unintentional changes in the dish's flavor profile, as the proportions of different elements may need to align with the original recipe.
Incorrect portioning can also contribute to increased food waste. If specific components are consistently over-portioned or under-portioned, it can result in excess inventory or insufficient quantities.
How meez can help: precision.
In pursuing financial precision, meez emerges as the indispensable ally for businesses striving to price out their dishes accurately.
- Yield & Prep Loss: With a database of over 2,500 ingredients, meez empowers businesses to account for ingredient prep loss automatically and precisely. Fabrication details, like a 70% yield for a chopped onion, are automatically applied to recipes.
- Custom Units of Measure: meez enables the creation of custom units of measurement for a recipe. Gone are the days of vague quantities; now, you can define specific measurements, such as equating 1lb of chicken wings to 8 total, ensuring clarity and consistency in your execution and costing.
- Real-time R&D: meez allows chefs and restaurateurs to tweak recipes on the fly and immediately observe the impact on food cost percentage and profit margins. Plus, you can see revenue and profit calculations for your entire menu in one view.
- Invoice Processing: meez automatically pulls in up-to-date costs and applies them to individual recipes. This enhances accuracy and streamlines the tedious task of manual cost updates.
- Keep track of fluctuations: meez helps you take control of ingredient fluctuations by allowing you to create spotlights on crucial items; for instance, you can closely monitor the cost of chicken, eggs, butter, or other vital ingredients used on your menu!
Are you interested in learning more? Take a 2-minute interactive tour of meez.
