Calculating costs is the cornerstone of price management. Restaurant businesses use hundreds of ingredients and other items to offer their services. As such, they do complex calculations to determine the gross and net profit of the company or a specific location. One of the most helpful tools in that process is food costing software. These solutions allow food service businesses to easily calculate the recipe cost of a single dish or the overall restaurant profit margin. In this post, we’ll shed some light on food costing in restaurants and how food service businesses calculate recipe costs thanks to food costing software. Make sure to also check our posts on the latest restaurant technology trends and our guide on QR codes for restaurant menus.
Key takeaway: Restaurants and other businesses use food costing software to calculate the gross profit margin of different menu items. These solutions are often included in other types of software like BlueCart or restaurant POS systems.
What Is Food Costing
Food costing is a process used by restaurants and other businesses to determine the cost of producing dishes compared to the revenue generated. Food costing shows the gross profit margin. That means it takes into consideration only the cost of goods sold and not additional expenses like labor costs, rent, utilities, or taxes. Several restaurant solutions have food costing software components. These functionalities allow eateries to calculate the overall food cost for a specific period of time or to calculate recipe costs. The former approach is useful when evaluating the overall profitability and efficiency of kitchen operations while calculating recipe costs is usually done when optimizing the menu.
Thanks to recipe and food costing software solutions, restaurants can improve their budgeting, inventory management, menu design, and profitability as a whole.
Methods to Calculate Food Costs
There are different ways to calculate food or recipe costs. Let’s briefly examine them.
- Plate costing is used for pricing menu items and calculates the cost of a single portion.
- Recipe costing includes a detailed breakdown of ingredients in a recipe. A single recipe can be done for multiple portions thus it’s slightly different compared to plate costing.
- Theoretical vs actual food costing compares ideas vs actual food costs.
- Inventory-based food costing uses inventory solutions to calculate the costs of ingredients over a period of time.
How Restaurants Calculate Food Costs
In the past, calculating food and portion costs was much harder for business owners in the food service sector. Nowadays, modern food costing software features allow managers to quickly calculate food costs in a few steps.
- Determine the cost of ingredients by adding up all the ingredients used in a dish. Keep in mind to calculate the actual amount used and not the full price. For example, making a burger requires only one or two lettuce leaves and not a whole lettuce. Thus, the price needs to be a proportion of the price of a whole lettuce.
- Once you know the cost of ingredients, the other component is the menu price.
- Use the formula food cost (%) = (cost of ingredients / selling price) x 100.
By using a food costing software feature, the process is fully automated. The only thing required from restaurant managers is to track restaurant data analytics properly and to correctly create the initial recipes.
Food Costing Software Examples
Various types of restaurant technologies have included food costing software tools. Some businesses in the food and beverage industry might choose to use a designated software for that. Others use their all-in-one restaurant POS systems to calculate portion costs and identify waste, theft, or other restaurant fraud. Examples include Toast and KitchenCUT.
BlueCart also has elaborate features that help restaurant success. Our platform allows eateries to create recipes and calculate profit from different menu items. An additional benefit of using BlueCart is that our SaaS software has multiple additional features. Our Endless Aisle platform allows restaurants to easily find suppliers, order in bulk, and compare prices.
What Other Businesses Need to Calculate Food Cost
Although calculating recipe costs is commonly associated with the restaurant niche market, other businesses also might use the features of food costing software. Here are a few examples.
- Coffee shops need to track the cost of espresso drinks that use syrups and milk as ingredients;
- Catering businesses and food service companies that combine restaurant and catering services also need to calculate food costs;
- Private and public institutions like schools, prisons, and hospitals create custom meal plans tailored to specific dietary needs;
- Food manufacturers also use some type of food costing software to track the ingredient costs of their products;
- Other businesses that offer some type of food or beverages like airlines, cruise lines, breweries, delis, and hotels.
Frequently Asked Questions about Food Costing Software
On BlueCart’s website, you’ll find plenty of resources on topics like restaurant tipping, restaurant marketing, and how to deal with restaurant inflation. Whether you operate a business in the restaurant industry or in another sector, you’re likely to find useful guides on our website. Below are the answers to common questions regarding food costing software and its features.
What Is Theoretical Food Cost?
Comparing theoretical vs actual food costs can help businesses measure the efficiency of their back-of-house (BOH) operations. Theoretical food cost is the ideal cost of food if there’s no waste, spoilage, or other types of inventory shrinkage. The actual cost is calculated by food costing software and includes all the aforementioned factors. Big differences between actual vs theoretical food costs can signal to restaurant managers that there are inefficiencies in the kitchen that need to be improved. Fast-food restaurants usually have the smallest difference between theoretical food costs and actual ones due to their efficient processes.
What Are Strategies to Reduce Food Costs?
Portion control and prevention of over-serving are some of the most popular reduce food cost strategies. Proper food inventory management can also help restaurants and food service businesses increase profitability without compromising quality. Proper menu engineering allows restaurants to identify high-profitability items and remove low-margin dishes. Negotiating better deals and partnering with broadline distributors can further reduce the cost of food for businesses. Keep in mind that suppliers who offer better prices usually have higher minimum order quantities (MOQ) or offer less flexibility in other terms. Focusing on seasonal and local ingredients can not only reduce food costs but is also a sustainable practice used by eco-friendly restaurants.
Is Recipe Costing the Same as Food Costing?
The two terms are broadly interchangeable, but there are some differences between them. The goal of recipe costing is to determine the cost of making a single dish (or cocktail). On the other hand, food costing usually measures the overall cost of food used by a food service business over a period of time (usually a month or more). That being said, recipe costing allows restaurant managers to analyze profit and manage pricing dish by dish. On the other hand, using food costing software to determine the total food costs of a business for a given period of time measures performance and operational efficiency.
BlueCart: A Food Costing Software with Multiple Features
Throughout the years, our SaaS solution has become one of the reliable options for distributors who specialize in wholesale sales. However, in addition to its tools for suppliers, BlueCart also has multiple functionalities for restaurants and other businesses. Thanks to our platform, food service companies can calculate food and recipe costs. BlueCart’s powerful kitchen and bar inventory management features make it an excellent choice for small and large restaurants. Schedule a demo if you wish to observe BlueCart’s tools for wholesalers, or sign up today if you want to use our software for your restaurant.