How to cost a menu (and as importantly……why?)

How to Cost a Menu

We all know we should cost our menus.  Any book on opening a coffee shop/cafe/restaurant will tell you about the importance of doing it.  So why do you, me and so many others totally ignore this sage advice?

Unless you have a masochistic streak that loves the tedium of weighing and measuring; working out how to cost a menu  is far from the most enjoyable thing you can spend your time doing whilst you are opening or already running a cafe on a daily basis.  There are just so many excuses not to cost you menu – it’ll take too much time, the menu changes too often, we just do it by costing the main protein elements…..these are just some of my previous excuses and the list goes on and on and on!

Baltzersen’s turned 6 on 1st October 2018 and that birthday coincided with me being able to say I had a fully costed menu.

6th-Birthday
We celebrated our 6th birthday with cake (obviously). This photo was taken at a shoot held prior to our first ‘FredagsRamen’ evening event.

This admission is a source of embarrassment for me, and has been for a number of years.  It made me think twice about engaging a consultant to come and work with us – because I didn’t want to admit that I wasn’t doing things properly.  That feeling of embarrassment is natural  and at the same time counter-productive.

If this is the situation in which you find yourself then make the decision to address it – you can do it yourself or bring someone in.  The first thing a consultant will do is likely hold you to account on getting this done and help you with how to cost a menu.  They know full well that it’s going to deliver the information needed to get things moving in the right direction.  You’ve probably been beating yourself up about this for a while so give yourself permission to forget about the time it has taken to come around and focus on getting it done.

I found costing my menu last year to be one of the most valuable activities I have conducted.  Once you get into the detail, use it to make your business more profitable and build systems that are based on a solid foundation it certainly becomes more alluring.  Money in the bank to pay your bills, your mortgage and perhaps even a holiday this year is sexy for the small business owner – the alternative is not, take it from someone who has been there with another business in 2018.

This is some analysis of our gross profit margin over the last 5 quarters, with the point at which we started costing the menu marked on.

GP-Margin-analysis

If you are in this situation; right at the start with nothing in place do not despair.  We costed our menu within a 4 week period – this included a total of 165 drinks and dishes.  It’s perfectly achievable, but it’s going to take some effort.

Here are my tips on how to cost a menu:

Equipment

It really doesn’t require much to get this show on the road.  You’ll need a copy of your menu, digital scales (measurements down to 1g), notepad, and pricelists/invoices.  Pen and paper is perfectly valid if that’s how you like to work but you may want to use Google Sheets/Microsoft Excel or a specialist piece of software.  Most of our work in terms of recording our recipes, weights and quantities was done first on paper and then transferred into software for accuracy and the ability to easily make subsequent changes.

Find your way

There are 101 different ways to cost a menu with different variations of detail but the basics are the same.  Personally I am a bit of a completist (and nerd) – if I’m going to do it I want it to be very accurate (because this helps me trust that it’s useful) and ideally I want to use a piece of software to help me do it.  You need to find a way that you understand, that meets your requirements in terms of delivering results that feel meaningful and ideally have a method to recalculate reasonably quickly if prices or recipes change – which they frequently do.

It doesn’t matter where you start – just begin.  We worked through the menu front to back starting with Breakfast/Brunch dishes.  I basically hung around the service kitchen as the chefs plated up dishes and got them to do it onto plates that I’d set on scales.  Once they understood what I was after they could continue doing dishes themselves and feed me the information.  The same went for the bakers in our small bakery room, the guys doing prep jobs and the baristas.

I would recommend  breaking your dishes down into 3 components, and this is the way that the piece of software I’ve used does it too.

Ingredients

These are components that will appear in a dish that are not processed, they are simple to measure as a pure weight e.g.

Every sandwich gets 3 cherry tomatoes (sliced into halves) at a weight of 30g.  If 200g of cherry tomatoes costs £2.00 this ingredient costs £0.30.

These are your basic building blocks and they are really easy to add to any sub-recipe or dish.

Sub-Recipes

A sub-recipe is any recipe that is part of a finished dish.  It could be Homemade Garlic Mayo, Fishcakes, Cake Bases etc.

You have to cost these sub-recipes by breaking them down into their ingredients, an example for fishcakes might be:

Screenshot 2019-03-05 at 21.57.45

This recipes makes 7 portions at a cost of £0.55.  You can now use this to form part of a dish.

Nb. You can see where doing this process using spreadsheets can become challenging as you need to list ingredients for the recipes in relevant quantities for the kitchen team and at the same time include the cost of the ingredients, which are often in larger quantities.  You can do the conversions manually, but it’s perhaps not the easiest method – especially if maths isn’t your strong point.  This is where specialist software has a huge advantage over manual and spreadsheet based systems.

DISHES

Dishes are where you bring together all of the ingredients and sub-recipes to create a full dish that appears on your menu.  You will then be able to work out the cost per dish.

The end game is to have a table with a line for every item on your menu much like this example below:

Screenshot 2019-03-14 at 15.52.02

KitchenCut

I’ve mentioned about a piece of software I’ve used to cost my menu and the specific platform is called KitchenCut.

The software allows you to enter all your ingredients into the system and then update them reasonably easily via .csv download/upload.

You write your sub-recipes directly using the ingredients you entered and then build your completed dishes.

It takes a little bit of playing with and getting used to but the functionality is excellent, especially if you want to give your wider team access to the system.   In terms of extra features we also use the stocktaking and waste recording capability.

Since completing the full menu costing our Head Chef has added step by step instructions to each sub-recipe and dish recipe so that an untrained member of the kitchen team could follow the instructions and carry out prep jobs or make dishes.  We’ve created a system that is much less reliant on individual members of the team.

Be a Leader

It’s tempting to try and kid yourself into thinking that handing a project like this over to your chef, barista or someone else is a good idea – but I’m here to tell you that in my opinion it’s not!

If you do hand it over it’s a big project so expect them to have to take a fair bit of time out during work time and be prepared to get cover for them.  The problem comes when they decide to leave and you don’t understand the system or are not sufficiently up to speed as to be able to include it easily into your work schedule.

I think you need to be leading this process.  The rest of your team need to see you dedicating your time to this and making it a priority.   You’ll get better buy-in at all levels and  everyone will start to change their mindset, thinking about correct portioning, minimising waste and designing dishes that are both delicious and profitable.

Leading the process doesn’t mean you have to do everything – you absolutely want the rest of the team to be contributing, but you need to be directing the show and creating the results.

Your direct involvement in this project will deliver a financial benefit to your business.

Follow through

You really need to want to do this because this process takes some grit and determination to complete, and then it needs revisiting regularly.  I could do with updating some of my dish costings right now with the most recent price we have from our suppliers, I am far from perfect I’m just a little further down the road at this stage.

I guarantee you will be tempted to give in along the way but you need to remain strong and committed.  Don’t allow your team to convince you that it’s all too hard/complicated – it’s not.  It is different and it requires them to make some changes to their processes.  Ultimately the end goal is a business that works better, delivers better profit, is able to provide you with a comfortable living and room to award pay rises on a regular basis to your team.  Everyone is a winner.

The Benefits

There are tonnes of benefits to completing this process.  The feeling of managing a business with an accurate set of figures is vastly better than operating with no real clue of what is going well and areas that aren’t contributing.

Once you have a fully costed menu you are in the position of being able to go dish by dish and explore how each one contributes individually and how the whole things hangs together in terms of delivering an experience to your guest.  I’m going to write another post about what I think you need to be looking for when examining your fully costed menu.

You’ll be able to use this menu as a basis for setting GP targets with your team and, by adding a couple of other steps, have the ability to monitor this on a regular basis.

Summary

Carrying out a full menu costing will transform the conversations you and your team have in your business in a totally healthy way.  Working in hospitality is not all about making money but a profit does need to be made otherwise what are we all doing here?  Profit allows you to consider growth and offer your team security.  As the owner of a business you will always be the person that suffers first when there is not enough money left at the end of the month and since the buck stops with you that will be your own fault if you continue to operate without putting some systems in place.

I’m not entirely sure who is likely to read this blog, it could be a relatively wide range of people.  I’ve written it to try and be helpful, let me know in the comments or via info@paulrawlinson.co.uk if it’s made you think about taking some action.  If there is something you don’t understand or I have missed out then also get in touch and I’ll try to answer your question or be a little clearer.

If you are on-board with the idea of doing this but aren’t sure about how to get it done or would like a little help then again get in touch, I’ll see if I can offer some advice or put you in touch with someone that might be able to help.

If you’re someone that helps small businesses with putting this process in place then I’d be keen to hear from you too.

The next post following on in this series is ‘How to engineer a cafe menu‘.

6 Comments Add yours

  1. Tina Silver says:

    Very interesting reading. I like the fact you haven’t sugar coated the work involved, but also highlight the upside.
    What formulas do you use for calculating wages and overheads?

    1. Paul says:

      Hi Tina,

      Thanks for reading.

      With the cafe already open we don’t need to do any calculations around overheads – we just need to record them (and then try to decrease them without impacting the guest experience).

      Wages are a different issue altogether! That refers to your overall model and the type of business you are running. In my business we’re aiming for Cost of Sales (COS) to be 20% of turnover and then to keep wages at 43% of turnover. That is a result of our model (we make most things from scratch so have more chef wages) and I’m carrying some extra cost because there are certain other choices I’ve made about how I’d like things to run. Clearly there are plenty of different ways to switch these numbers around depending on your product mix and your personal outlook on how you’d like to do things.

      Most cafe/coffee shop industry advice suggests 10% of turnover as a maximum for rent and 5% for rates. If you are at the top end of all those figures you’ve already spent 78% of turnover, so overheads and profit are going to come out of the remaining 22%.

      Is this an area you’re looking at within your business?

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