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How to Calculate your REAL Menu item Costs.

Labor impacts the cost of food for a dish. The cost is composed of the cost of the ingredients, loss due to spoilage and waste and dishes returned to the kitchen because of customer dissatisfaction. Another factor impacting cost of food is portion control and free food given to customers. For example, if the cook uses 5 ounces of chicken breast when the portion should be 4 ounces, that's a 25 percent increase in the cost of the dish.



It would seem to be a simple formula to factor labor costs into a recipe. Time the employee as she makes the dish. Multiply the time by her hourly salary and you have the labor cost. There's a bit more to labor costs in a restaurant's recipes than that. To make a truly accurate estimate, other factors must be taken into consideration.



Labor Skill

  1. An experienced sous chef has a higher skill level than someone new to the kitchen. That experience means that the dish is prepared more quickly. The employee doesn't have to check the recipe for ingredients, can slice and dice faster and produces less waste of ingredients than an inexperienced new hire. A less experienced employee makes mistakes, which increases both the cost of the food and the labor, since the dish has to be made again. On the other hand, cleaning and chopping vegetables doesn't take the skill level of preparing a complicated sauce. Labor intensive recipes command a higher retail price. To improve the return on investment for labor costs, match the skill level of the employee with the task's skill requirement.


Employee Salary

  1. In addition to skill, employee salaries factor into the labor cost formula. If two employees both take the same amount of time to prepare a tossed salad, for example, the one that gets paid more per hour will increase the recipe's labor cost.


Amount of Cross-training

  1. If an employee has only worked in food prep and has no experience on the grill, she takes longer to make the same recipe as one who has been at least cross-trained on the grill so he's familiar with the equipment. That inexperience increases the labor cost for preparing the recipe. Decrease labor costs by having staff cross-trained.

Level of Required Preparation

  1. The amount of time it takes to make a recipe is based on how much preparation is required. Restaurants that use heat-and-serve food have a lower labor cost than those that prepare everything from scratch. However, their food cost is higher because the labor cost of the food manufacturer is part of the price the restaurant pays for the ingredients. For example, frozen French fries need only to be cooked in the deep fryer. The labor is opening the package, putting the fries in the fryer, removing the fries and salting. Preparing French fries from scratch includes washing and peeling the potatoes, cutting the potato into fries, putting the cut potatoes in ice water, drying them off before frying, frying, removing from the fryer and salting.

To put this all in perspective, here is a simple formula for adding labour cost to a determined plate cost. Why it's important is because you may find that the labour cost may exceed the actually food cost, which is a problem.


How Food and Labor Costs are Calculated

Food and labor costs are calculated as a percentage of the total volume of sales. If a restaurant does $20,000 per week and the total cost of food and beverages is $7,000 for that week, then the food cost is considered 35 percent. If, at the same restaurant, labor (including payroll taxes and benefits) equal $5,000 for the week, then the labor cost is 25 percent. Total prime costs are 60 percent in this example..


However what I am talking about is each individual item on the menu.


Say for example your food cost for a hamburger is $3, burger patty, bun, lettuce, tomato and onion. If it takes Joe 30 minutes to do the prep to make enough prep for 30 burgers, and Joe earns $20 per hour, the labour cost is $10 or .33 cents per burger. This changes the plate cost to $3.33. If the burger sells for $9, the cost percentage is 37%, as apposed to 30% without the labour. So maybe we buy a pre made burger, or get the prep cook at $15 per hour to make them? The industry calls this a make or buy analysis. As much as the true chef with passion about food loves the idea of making everything from scratch, it's not always financially viable. An extreme example of this would be for example, growing and milling your own flour for bread...lol. Not financially viable. I think you get my drift.


One last little bit on recipe costing from our friends at Chef's Resources.


Cheers, and have a wonderful, financially successful hump day!

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