To be a good chef, it’s not just about how to turn an omelette stylishly or season a steak well, you also need good organizational skills, a reliable calculator, and to some extent — culinary math skills to get the top spot.
Math skills are important as you need to be making a profit in order for your business to sustain in the long run. This means managing the costs of other things such as rent, labour, electricity, water, together with ingredients.
There are many ways to calculate the cost of food. One of the main criteria is that the cost of food should be in the range of 33% of the menu price. Here’s a basic guide to calculating your costs and how to put the right price.
1. Know the price of your ingredients
List the types and proportions of ingredients that will be used in each dish. It is important that you do an inventory check at the beginning as well as afterwards when you’re doing your calculations so that you are aware of how much of each ingredient you are using on a daily or monthly basis.
While it may seem insignificant to list ingredients such as salt, white pepper powder or cooking oil, it is a must if you want to calculate the exact cost. While there are many ways you can do this, a great way is to have an inventory checklist that is updated daily so that you can have a clear look at your ingredient usage from a glance.
You can use your POS system to cross check that the ingredients you have used matches the amount and type of dishes that have been sold for the day.
2. Control the amount of ingredients used for each dish
You don’t want a mini-sized crab dish turning into a jumbo size when cooked by a different chef. You should be able to communicate with your group of chefs to make sure that the dosage or amount used for every dish is consistent.
Use a scale to measure each serving at the beginning of preparation, and sooner or later you will gain experience in determining the correct measurement estimate after preparing the same dish over and over again.
Always remember that the scale will affect the cost and the cost will affect the final profit margin.
3. Calculate the cost for each material used
For example, if you use 10 grams of shrimp, divide it based on the details stated in your invoice. While things such as ingredients may seem clear enough, there are other costs that are less obvious.
Don't forget to include these other costs such as service tax, shipping charges and various other applicable costs.
4. Determine the menu price
No matter how much your meal costs, it should be within 33% of your menu price. For example if your meal costs $24, the cost of your meal should be $8.
This is important when it comes to the portion or size of your dishes as well. Ensure that the ratio is always kept the same whenever you change any variant.
If the size of your meal increases but the price of your food remains the same, the cost of your food will be higher but your profit margin will be lower.
5. Customers are very sensitive to price
A price increase of one or two dollars may be common to you due to several different cost changes, however it will be picked up by customers who are very sensitive about it. Therefore, accuracy in your calculations and measurements is of great importance.
Putting the right menu prices and achieving the perfect balance between pleasing customers and making a profit is not an easy thing to do. Nevertheless, it is a necessary and important step to ensure that your business remains sustainable, and to grow it to scale.
The important formula: How to calculate your profit margin
After you’ve derived all your costs and also are aware of your total revenue, here comes the important formula:
Restaurant-level profit = (combined revenue) – (cost of goods sold + labour costs + controllable expenses + non controllable expenses)
With this, you’ll be able to calculate your profit margin, and decide if you’re able to continue selling food at a certain price, or whether you have to find other ways to ensure that your profit margin is positive.
This could mean thinking of more marketing ideas to increase your revenue, making dish sizes smaller to reduce costs, looking for cheaper alternatives for your ingredients, or even increasing the price of your menu.
At Unilever Food Solutions, we’re dedicated to helping chefs and business owners with any questions that they may have about running a food business. For ingredients that provide great taste at minimum cost, check out our products.