Pre-Costing the Menu

When preparing your menu, items should be pre-costed and translated into standardised recipes with yield and portioning. We discuss this in detail in our Food Costing Short Course.

Menu analysis and engineering uses historical sales data to evaluate menus, however you need a detailed costing of each of your dishes on your menu. These costings should be kept up to date as commodity prices change.

A food service establishment will have a predetermined (budgeted) food cost percentage and gross and net profit margins that they need to achieve to be profitable. At the end of the day, it all comes down to accurate costing.

Gross Profit: The amount of profit left after deducting the direct costs of materials to make a dish (food or beverage cost).

Net Profit: This is the profit left after all fixed (overhead) costs (staff costs, licences, utilities, rent) and variable costs have been paid. This is the how much profit the owner or shareholder can expect to receive for capital invested in the business.

It is therefore important that your menu should be costed to ensure that the desired gross profit is achieved. If not, you are likely to run at a loss.

Let us refresh ourselves on the basics of cost of a dish, food cost and calculating selling prices.

Determining Food Cost percentage per dish

To calculate the food cost percentage of a single item on the menu the formula the cost per portion divided by the portion selling price as a percentage:

Example: The cost per portion of a main menu item is $4.62, and you are charging $21.00 per serving.

The food cost percentage calculation is as follows:

This indicates that 22% of the sales of your main menu item pays for ingredients used to make the dish.

The other 78% accounts for the other expenses the operation incurs in making the menu item – labour, utilities, rent etc. The amount that remains after your expenses have been paid becomes your profit.

You can also look at food cost as it relates to a currency for example: If a recipe has a 40% food cost, then the food cost is $0.40 for each $1.00 of sales.

Important: The food cost percentage for an operation is extremely important. It is one of the tools used by successful managers to evaluate profitability and menu items through Menu Engineering.

Costing a recipe

Before you can determine the selling price of a dish you need calculate the cost of the recipe and then each portion of the recipe.

Cost per Portion: Total recipe cost divided by the number of portions.

Example: The total cost of a given entrée on your menu is $28.56 and you are yielding 8 portions per recipe. The cost per portion calculation is as follows:

Cost per Portion: $28.56 divided by 8 = $3.57

The cost per portion is then used to calculate the selling prices based on a desired food cost percentage.

Calculating the selling price

Once you have calculated the recipe cost, the selling price per portion is the cost per portion divided by the food cost percentage as a percentage:

Example: We have determined that the cost per portion is $3.57, and the food cost percentage is 25% for your operations; the selling price would then be:

Reflect on the following and please comment

if you have your own restaurant, have you ever put an item on the menu and not costed it beforehand? What was (or what could be) the result? We would love you to share your experience with other learners on the course.