Learning to cost out a dish can be challenging. It will often take a bit of trial and error to fully get the hang of things, but it is absolutely crucial to the long-term success of your restaurant. By understanding what makes your dish profitable, what costs you will pay to make it, and how to balance those, you’ll be able to effectively cost a dish.
Introduction to Dish Costing
What is Dish Costing?
Costing a dish is, put simply, the act of calculating how much each dish actually costs your restaurant. This will include the cost of ingredients, preparation time (labor), and portioning, along with any additional costs like to-go packaging. Once you’ve done that, you can figure out how much to charge on top of your base cost to turn a profit.
While it’s entirely possible to run a restaurant without costing dishes, it’s nearly impossible to do so for very long. Restaurants that don’t cost out their dishes will find that labor runs high, inventory costs climb, and will have no idea why.
Step 1: List All Ingredients
Your ingredients are where the food begins, so they should be where you begin when costing your dishes.
Breaking Down the Recipe
Before you do anything else, it’s important to know all the ingredients that go into each dish. This is generally done the fastest by dividing how much of each ingredient you buy by how many dishes that quantity can make.
Understanding Portion Sizes
Accurately determining portion sizes is crucial when calculating the cost of a dish. Each ingredient should be measured based on the exact amount used in a serving. This ensures that you're not overestimating or underestimating the cost. Being precise with portion sizes helps maintain consistency, control costs, and ensure that you’re charging appropriately for each dish.
Step 2: Calculate the Cost of Each Ingredient
Sourcing Ingredient Prices
To accurately calculate the cost of each ingredient, it's essential to source current and reliable prices. Begin by checking with your regular suppliers, reviewing your most recent invoices, and considering bulk purchase discounts. You can also compare prices across local markets or online vendors to ensure you’re getting the best deal.
Handling Fluctuations in Ingredient Costs
As you know, ingredients don’t always stay the same price. As seasons change, crops are affected by weather and pests, and the availability of limited resources takes its toll, you’ll find that some ingredients will fluctuate in cost. Sometimes, this will be in your benefit — but sometimes not. When this happens, it’s time to do the math on whether it’s worth it to pay that increased premium for your ingredients, or if it’s time to change the dish.
Step 3: Determine Labor Costs
Factoring in Preparation Time
Generally, you should account for the preparation time when factoring out how much a dish should cost. Most dishes should be able to be easily prepped in a relatively small period of time and, ideally, this should be done in large quantities.
While that’s super easy to say, in practice, it can be harder to implement. The easiest way to readily manage labor costs is to establish a clear guide on how to prepare each dish. This provides your chefs with a clear guide for how to do it, how long it should take, and allows you to more regularly predict the cost of labor on each dish.
Calculating Labor Costs per Dish
Once you have an idea of how long each dish takes to prepare, it’s time to do a bit of math. Let’s say that you’re preparing a dish that takes two hours of labor to prepare ten portions and ten minutes to get ready to serve during service.
If one chef does all of that work, you’re looking at a cost of two hours for base prep, along with an hour and forty minutes of labor for mid-service preparation. Overall, you’ll be looking at just shy of four hours of overall prep. Now it’s time to factor that into your costs.
Most restaurants try to keep the cost of labor per-dish around 20-30%. This leaves another 30-40% for material and produce cost, ultimately leaving you with around 25-30% as profit.
How to Include Overhead in Labor Costs
When calculating labor costs, it’s important to factor in overhead expenses that contribute to the overall cost of running your restaurant. Overhead costs include things like utilities, insurance, rent, and employee benefits. To account for these in your labor costs, when you estimate the percentage of time employees spend specifically on preparing a dish. For example, if a dish takes 30 minutes to prepare and your kitchen staff is paid hourly, divide that time by their hourly wage and add a proportionate amount of overhead costs. This ensures your pricing reflects both direct labor and the operational costs tied to producing each dish.
Step 4: Add Additional Costs
Packaging and Presentation Costs
Packaging and plating are some of the most common costs that you’ll need to deal with when costing a dish. This becomes especially important when dealing with to-go items, as you’ll now need to pay for the bag, napkins, to-go cutlery, the box itself, and any other items like travel ramekins. While these costs won’t majorly impact your bottom line, it’s good to keep them in mind.
Be sure to include any other additional costs that apply to your specific restaurant type as well.
Step 5: Set the Selling Price
Understanding Your Desired Profit Margin
Previously, we talked about percentages being set as guidelines for each dish; for example, if you know that you need to make at least 15% profit on a specific dish to not lose money, you should be aiming for around 20-25% profit.
This allows you to have a safety net to prevent losses when ingredients change price, suppliers don’t deliver, or staff get sick. While it’s easier said than done to make a certain percentage of profit, that’s where our next main section comes into play — analyzing and adjusting over time.
Market Considerations in Pricing
Even if you want to make large profits on each dish, it’s important to understand that you’re part of an overall market. If you charge $10 for fries, while the place next door charges $5 for the same portion, your fries won’t sell. Similarly, if you severely undercut your competition, you may find that you’re making very little actual profit while still serving loads of guests.
How to Test and Adjust Prices
This will tie into the next section as well, but testing and adjusting prices when costing a dish is a task that’ll take time as well as trial and error. You’ll need to make small, incremental changes to your pricing for two reasons. First, it allows you to backtrack should things not work out. Second, you’ll be able to see what changes work and which ones don’t without needing to make a full-on commitment to changing prices restaurant-wide.
Step 6: Monitor and Adjust Over Time
Keeping Up with Ingredient Price Changes
You’ll always need to adjust pricing for ingredients, it’s just a fact of the industry. While you can generally plan on most ingredients staying around the same cost, we’ve all seen what the pandemic did to the cost of chicken, eggs, and dairy (among many other things).
So many events can easily impact the cost of your ingredients, so it’s important to have an alternate plan in place should things go that way. Whether that means cutting the amount of an ingredient to stretch it further, removing a dish from the menu, or simply shopping for a new supplier, have a plan in place before things hit the fan.
When to Reevaluate Your Pricing Strategy
Should you find that a dish doesn’t sell well, it can be one of two things. Either your guests simply don’t like it that much — in which case you should rework it — or it’s not properly costed out. This will become especially apparent after changing your prices; if a dish goes up several dollars and suddenly won’t sell, that means that you’ve found your price ceiling for that dish. If it suddenly sells out constantly, then you’ve found your price floor.
From there, you can find a sweet spot where you’ll still turn a profit and guests will be willing to pay — this is all just one big seesaw of pricing for supply and demand.
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