Recipe Costing for Profitability

Don J. Avalier

Time spent costing pays Any time financial statements are being reviewed or the discussion turns to operating costs and controls, the concern over food cost is always a prime focus for our clients. When we ask about food cost, the answers are typically brisk: "It stinks" or "We're doing great" or "We're a half-point better than last year." All of these responses beg the essential questions, which are "Has a potential, ideal or theoretical cost been established, what is it, and what method was used to determine the projected cost?"

The answers to those questions never cease to amaze us, insofar as in more than 75 percent of cases, comparisons are made against only previous-year percentages or perhaps cost calculations that were computed several years ago and were never revised despite changes in menu items, sales mixes, ingredient costs, etc.

Proper recipe costing is a somewhat tedious and time-consuming task; however, when compared with the potential dollars lost through undetected high food cost, it is time and money well-spent. Major catering operations frequently prepare budgets well in excess of a million dollars without thorough research into the various components that constitute the overall food cost.

COMPLETE COSTING Before attempting to cost out recipes, it is necessary to run yield tests not only on the center-of-the-plate items, i.e., meat, fish and poultry, but also the vegetables, starches, sauces and garnishes. It is important to note that when doing butcher tests and fish tests, not only is the net cost of product of interest, but so is the time necessary to do the preparation (although this time should not be calculated as part of the food cost).

This is especially true if the executive chef or the sous chef or some other highly trained, highly paid individual is doing the butchering. That person's time, while not part of the food cost calculation, is part of the labor cost, and one must ask if that is the best use of time and talent. It is appropriate at that time to study the total cost of doing the butchering in-house vs. buying portion-controlled products, taking into consideration the ability to use the byproducts, quality control issues, consistency of yield and net cost of the plated product.

The time spent cutting meat, fish and poultry also has a direct relationship to the sales abstracts when preparing production charts for the kitchen staff to maximize utilization of labor hours. Too often, operators take shortcuts by attempting to cost recipes using the gross cost of ingredients, resulting in artificially low costs - and then wonder why they cannot achieve their cost objectives.

Costs must also be included for tabletop gratis items such as bread, butter, relish trays or any other complimentary items included with a given meal period function. Random checking of plated items must be done to determine if the production staff is adhering to established portion guidelines.

ESSENTIAL ELEMENTS We provide a sample recipe-costing worksheet for our clients. The worksheet asks for the following key information:

- Date recipe was costed

- Meal period

- Recipe name

- Last update

- Yield

- Portion size

- Cost per portion

- Profit per portion

- Suggested selling price

- Food cost percentage at suggested selling price

- Ingredient description

- Purchase price

- Per unit

- Recipe unit of measure

- Cost per unit of measure

- Extended ingredient cost

- Total recipe cost

As an additional convenience for some of our clients, we have included this information:

- Suggested selling price to achieve specific food cost goals, i.e., 25 percent, 30 percent, 35 percent

- Plating instructions

- Garnishes

NEXT STEP, SALES After each recipe is properly costed, a review of the sales abstracts is needed to determine how the mix of sales will affect the overall theoretical cost. Once each recipe's cost and selling price are entered into a simple spreadsheet program, the only ongoing task is to enter the mix of sales for the period under review to determine the food cost potential for that period. This period can be by meal segment, by day, by week or by month to ascertain the overall projected food cost. At that point, catering management has established a starting point for the evaluation of the kitchen operation by meal period. This would be particularly beneficial if your kitchen management team is on a bonus program based in part on its ability to control food costs.

Any time the cost of recipe ingredients changes radically, recipes are added or deleted from the menu, special pricing is offered to clients or there is any other factor that could change the relationship among recipe costs, revenue and sales mix, you should calculate a new theoretical cost. You must remember that this "ideal" cost assumes there is no waste, overportioning, pilferage, spilled food, employee consumption of food, etc. This is a utopian wish that does not exist in day-to-day operations; however, well-run operations frequently can maintain costs within one or two percentage points of potential through diligent cost-control systems.

With catering operations, when there are guaranteed guest counts, it is possible to run "under potential" because a client will be charged based upon the guarantee despite not all meals having been served. Depending upon the entree being served, a well-run kitchen will not prepare and plate 100 percent of the meals without a definite head count.

STOP GUESSING Without the knowledge gained through recipe costing and the subsequent application of those individual costs to the sales mix to determine what costs should be, the caterer is running blindfolded through a foodservice minefield and is destined to remain at the mercy of the kitchen staff, previous years' operating standards or someone's idea of what food costs should be. It would be nice to say that recipe costing would solve all the catering operators' problems; however, it is only one piece of the puzzle, albeit an important one, that constitutes the total picture of any well-run food and beverage operation.

Before any management team can determine what it wants its food costs to be in the future, it must determine what they are today and then decide the most prudent approach to achieving its food cost goal. At the same time it must continue to provide guests with perceived value for their catering dollar. Recipe costing is a necessary first step to that end.