Recipe Costing Basics: How To Calculate The Cost of Your Menu Items

Menu costing is calculating the actual food and/or beverage cost of every item on your menu. It's one of the most fundamental, necessary and yet avoided practices in the independent segment of the restaurant industry.

While the initial setup of a menu costing application can be a time-consuming, even laborious undertaking, if done right, it is well worth the effort. Operators who commit to an ongoing, accurate menu costing discipline, have at their disposal valuable information to make better, more informed decisions in several key areas of their business.

Menu costing is one of the cornerstones of good business management in the restaurant industry. What could be more basic than a business knowing the cost of the products it sells? Whether you're talking cars, computers, candles or candy bars, manufacturers of any other product you can think of know exactly what it costs them to make the products they sell. It should be no different for restaurant operators.

Primary Advantages

Menu costing is needed in the pricing process. While menu pricing should be primarily market-driven, knowing the food cost to produce each menu item is an important consideration.

Operators who know the true food cost of each menu item may decide that it doesn't make sense to offer certain dishes if the price in their market won't allow them to produce a sufficient profit margin. Or they may decide to charge a higher price on some items regardless of the price down the street. In either case, when you "know" what your menu items cost to produce, you can make those types of decisions based on facts, not hunches or gut feel.

Menu costing is a must in determining what items to feature and promote. In every section of a restaurant's menu, there are items that generate a larger gross profit margin than others. Operators who cost out their menu not only know the food cost on each item, but even more importantly, they know how much gross profit margin each item generates so they can decide which items to promote and merchandize most heavily.