Take Control of Your Bottom Line: A Guide to Calculating Ingredient Costs

In the ever-changing landscape of food inflation, calculating ingredient costs has become indispensable for restaurant operators seeking to maintain profitability and set appropriate menu prices.

Effective cost calculation involves analyzing ingredient expenses for individual products, recipes, and portion costs, as well as considering the overall inventory associated with the restaurant's ingredient list.

While many operators currently rely on excel-based inventory and recipe cost calculators as a starting point, there are more reliable and automated tools available that can significantly enhance the control over food costs.

Discover the significance of cost control in the restaurant industry and explore essential automations that introduce consistency and scalability into your ingredient cost processes. By leveraging these strategies, restaurants can effectively manage costs and thrive in a competitive market.

To determine food costs, the process involves two main steps: calculating individual ingredient costs and then translating them into costs for recipes, plates, portions, and more. Here's a simplified guide for both aspects:
Step 1: Calculating Individual Ingredient Costs
  • Review the latest supplier invoice.
  • Locate the specific ingredient on the invoice.
  • Determine the cost of the ingredient based on its unit of measure (UoM).
  • This process is straightforward as long as operators and back-of-house staff maintain a record of invoices and monitor fluctuations in ingredient prices.
Step 2: Calculating Recipe and Plate Costs

List all the ingredients used in the recipe or plate. For instance, calculating the cost of a steak involves considering the beef, butter, garlic, shallots, and herbs used for basting. It may also include expenses related to sides like a loaded baked potato.

Note the quantity and unit of measure (UoM) for each ingredient. For example, when dealing with eggs, operators may need to account for variations like two eggs for a breakfast plate or eight eggs for a whole quiche. In cases where restaurants process their own beef, they must factor in the ounces per steak to determine the number of servings from a whole cut.

Refer to the most recent invoice to obtain current ingredient prices. This is crucial, especially when certain ingredients experience significant price fluctuations, like restaurant egg prices in 2023. Diligent tracking of invoice prices allows operators to adapt to week-to-week or month-to-month changes.

Utilizing ingredient costing software and tools can effectively control expenses and optimize profitability in the food industry.

These tools streamline the labor-intensive aspects of managing food cost percentages, especially when integrated with invoice automation systems.

Invoice automation forms the backbone of accurate recipe costing.

Supplier invoices are essential documents, serving as the definitive source for tracking fluctuations in supplier prices. However, manually managing multiple invoices every week can be challenging, making it difficult to monitor individual line item changes effectively.

The value of invoice automation tools lies in their ability to automate the ingestion of invoice data, not only fulfilling accounting needs but also extracting line-item details to keep ingredient costs up-to-date in the recipe costing system.

With regularly updated ingredient prices, recipe costing tools can provide near real-time insights into the cost of goods sold (COGS) for each menu item. By pairing this information with menu prices from the point of sale (POS) system, operators can forecast potential profit margins for each item on the menu.

This proactive approach allows operators to compare costs over time, identify annual and seasonal trends, and analyze fluctuations. Armed with such valuable insights, operators can set quarterly profitability targets, make informed decisions about discounts, specials, limited-time offers, and more.

Coupling an insightful inventory management system with invoice automation proves highly advantageous for restaurant businesses. While periodic inventory counts remain relevant, the invoice system offers a comprehensive snapshot for operators to work from when managing supplier orders.

For instance, consider the scenario where a case of peppers gets misplaced in the walk-in. Without a reliable inventory management system backed by invoice automation, such an occurrence may go unnoticed during a standard inventory count. As a result, the kitchen manager might unintentionally order another case, impacting overall gross profit and leading to unnecessary food waste.

By leveraging the power of ingredient costing software and intelligent inventory management rooted in invoice automation, restaurants can maximize efficiency, minimize waste, and optimize their financial performance.

Experience seamless ingredient costing with Dashy Dash, an innovative invoice and inventory management platform. Say goodbye to laborious paperwork as Dashy Dash empowers operators to optimize their staff's time and achieve more with less effort.

Gone are the days of tediously reviewing invoices, making price notations, and updating ingredient prices. With Dashy Dash's automated systems, you can take charge of food costs, reduce labor expenses, and free up your back-of-house staff to focus on their passion.

Discover the remarkable capabilities of Dashy Dash by requesting a demo today and unlock the potential of streamlined operations and cost savings.

About Savor

Savor helps restaurants, restaurant groups, and chains of all types control supply costs with less work.

With Savor restaurants can manage invoices, track product price histories, and drill down into expense categories. We help restaurants...

  • Automatically catch rising prices before they spin out of control
  • Benchmark prices for supplies against those paid by similar restaurants and bars
  • Easily find alternative products and suppliers in their area
  • Capture credits by automatically auditing invoices for errors

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