Keep it simple stupid.
We have only reached touched the surface with costing and already it could look a daunting subject. The good news is that you are probably ahead of most restaurateurs in your understanding of how to build and apportion cost, but there is still more to come. How far you take this can only be gauged by how much time you have upfront and how complicated you want to get. Just because the numbers and assumptions can become complex quickly, this does not mean that you cannot build things in a methodical and standard manner. If you can work out how to plod through a costing exercise, step by step, this becomes a repeatable process.
The basic steps of putting your menu cost together are:
1 Write the recipe out FULLY.
2 Make sure you have an accurate current wet cost for each ingredient and that any inbound costs are collected too.
3 Put the recipe into your planning tool and out will come your cost.
If you only do the above, you have nearly everything in place. The key to getting better measurements is understanding how costs behave. You can heavily overburden yourself if you start putting too many parameters into your costs. Keep is as simple as you can and you will be rewarded with less stress and a better understanding of your numbers.
Test, test, test
The true test of any costing process is to check how accurate it scores. You have been running your kitchen for a new menu for over a month and you have implemented a basic system for calculating cost and coding for non-food use. In theory, if you add up the value of your stock, diverted expenses (e.g. staff meals) waste and menu items sold, this should add up to the value of supplier invoices? If it doesn’t then you need explain the difference, which is called the variance. The goal is to be able to account for a delivery of ingredients all the way until they have been zeroed out in the store room.
We take in a delivery of 20lbs of minced beef to make home made burgers.
1 All stock is weighed on arrival and checked against the delivery note.
2 The recipe calls for 8oz units for each burger and you have sold 30
3 Staff meals have accounted for 4 burgers
4 A single meal was taken apart and photographed
5 You have 1lb down in waste and no residual stock
What happened to the other 1½ lbs? Each of the 5 items are a control point. If paperwork is not carried through or the kitchen is too busy, you will lose visibility of your costs. Anything could have happened to the ingredients, there may even be some left in a container in another fridge. If the recipe has slipped to be roughly a chefs hand full, you could very well be looking at just shy of 9oz per burger and that’s more or less covered your shortfall. The recipe is probably the one consistent driver of volume here as you would have hoped the paperwork would have caught the other elements. To maintain consistency you have to test all your assumptions again and again.
If you can turn any weight into a number of portions instead, you are ahead of the game. By this I mean, we make burgers out of the meat on arrival. If you have 40 burgers all made up, then your recipe is instantly accurate. If not, then it’s time to revisit your costings.
Modifying recipes and the cost implications.
Very simple rule, any change to a recipe should be a new recipe. Every time you tweak a recipe you are changing the ingredients in there. This doesn’t take too long before your first version on one menu is a completely different dish as it has evolved. As the list of ingredients moves about, so does your costs. You can very easily end up trying to hold this recipe within a price without seeing the creep of cost.
Keep your old recipe as you may need to go back to it. This is a further benefit as you know somewhere in time when you had the optimal recipe developed and now you can go revisit if needed. This also allows you to record and restore any seasonal variations of a recipe to your latest menu.
By keeping separate recipes the overall objective is to be able to build a cost, which then can help you price the menu. Any changes in ingredient cost over time can be identified only if you are keeping the recipe clean.
Sunk costs
Here is one favourite myth that needs to be dispelled. When you have bought food for the kitchen, cost doesn’t matter if it doesn’t get used. Just get some money back for it, that’s better than nothing. Creating ridiculously low priced specials does not send out a good message to customers and is really a symptom of the attitude towards inventory. Do you really want these food costs to hit your gross margin when you have overstocked the larder?
The flip side of this argument is that the cost is sunk, there is nothing you can about it now, so try and recover some form of revenue here. If you want to do this, at least make a note of what you have used and call it specials – cost. This way you can match the cost against any revenue you make on specials, which keeps it clear in your gross margin report. Specials should not be there to drastically undercut your main menu, or guess where the next stock for your specials is coming from.
Staff meals and publicity photos can all be done with surplus stock or even try and find a local charity or soup kitchen who would be grateful for this. Don’t let food hit your waste and don’t let cheap specials waste your reputation.
Outgoing costs
Not every venue operates within the four walls of their own address. Some kitchens ship food outside. This brings up a new range of costs you need to be looking at. The question as to whether these costs should chip away at your gross margin is open for debate. If you sell a uniquely packaged product that has no variation as it leaves the door, then this is fair to add to your food costs. You move a pizza into a box, then there is the cost of that box each time. If you sell mail order, then you are going to have a courier cost for each package. Labels, fuel, taxi costs, bags, napkins, wipes and wrappers all add up.
A simpler way to work this one out is to track your restaurant sales, your takeout sales and any mail order sales as separate revenue lines and then code delivery and packaging costs to each type of sale. None of these have to appear as part of your gross margin, they can at least be split out when you look at the operating costs of your different areas. This creates cost silos, which is not a bad thing, you know where the cash is being spent and on what.
To separate your numbers out in this way allows you to really see where your business is making it’s profits or losses. Once you start looking at restaurant GM v takeaway GM, the restaurant could be making more as they don’t have packaging and delivery to pay for. The reality is that crockery, alcohol licenses, front of house staff, rental on table space etc all should go against your restaurant. If you charge for delivery or for sitting down, this needs to be reflected as revenue or cost reduction in one of the appropriate silo of your business.
Costing outside catering
There are several varieties of outside catering but they generally fall into either a price for the whole service or per head. Whole service is about coming up with a price for everything on the day. A price per head would usually be a whole service price divided by the expected number of guests. Whole service means that you don’t get nobbled for any last minute changes to order quantity in your revenue. Price per head allows the customer to make a comparison against similar suppliers, but you can fix in a condition that the guest count is a fixed quantity.
To help you consider all the areas you may need, there should be a master spreadsheet which contains your price list. Unlike building a menu cost, you are effectively opening