As off-premise dining (i.e., takeout and delivery) continues to increase, accounting for food costs can really be the difference between a successful restaurant and a failing restaurant.
In the previous installments of this series, we covered inventory and vendor management best practices for your restaurant accounting clients. In this article, we’ll review the importance of knowing your plate costs and margins and how to advise your clients to make data-driven menu modifications that will maximize profits for the short- and long-term health of their businesses.
Why Plate Costing Matters
Calculating recipe costs is vital to the success of restaurants. After all, if operators don’t know how much margin they’re making (or potentially losing) on each menu item, how will they know if they’re going to be profitable?
However, it’s an often overlooked exercise that may only be performed once, if at all, and usually when the restaurant first opened. Recipe costing can be a complicated, time-consuming process if restaurant operators don’t have the right tools. It requires the chef, owner, or perhaps accountant to have a complete catalogue of each item that goes into each recipe, along with the unit prices of those items.
Because ingredients are purchased at different units of measurement than they are used, there is a conversion calculation that must take place to derive the usage cost. Once the ingredients and their unit costs are documented, operators combine them into prep recipes and account for labor costs to know the prime cost related to each.
Having standardized recipes helps the kitchen create consistent dishes, which drives loyalty from customers who can expect the same quality every time they order a certain menu item. Plus, knowing plate costs helps operators to better price their menus.
Make Recipe Management a Habit
As you can imagine, plate costing is a time-consuming process — and that’s exactly why it’s not done regularly by restaurant operators. Most have a general idea of how much their plates cost, but due to the time commitment as well as the fluctuating price of ingredients, it’s tricky to get consistent insight into exactly how much margin each plate yields.
However, similar to inventory and vendor management, plate costing is yet another aspect of restaurant operations that can be modernized. Software solutions can now empower restaurant operators with a suite of tools for recipe management that capture fluctuating ingredient prices over time without having to recalculate an entire recipe.
By using software to support recipe management, restaurant operators build out each recipe once. The software then calculates the plate cost for them, even taking labor costs into consideration — no manual math required. If the operator is also automating AP processes at their restaurant, the data from invoices will automatically be applied to the plate cost so fluctuations can be spotted without routine recalculations.
If you recommend recipe management software to your restaurant clients, you’re encouraging proactive food cost management habits that can have significant short- and long term implications for the health of their businesses.
Harnessing Data for Menu Modifications
Once your restaurant clients are set up to properly track and manage plate costs, you’ve unlocked another way to help them maximize margins: menu modifications.
Your restaurant clients will finally have the exact numbers they need to make practical choices about the food that they serve. For example, maybe one of your clients offers a specialty pizza, but the ingredients require them to order a specialty item that isn’t used for anything else on the menu. By modeling the plate costs on hand — and projecting how those plate costs change over time — your client has the data they need to decide the price of that item and whether it’s worth having it on the menu.
Encourage your restaurant clients to get creative with different combinations of recipes that have been priced out. Your clients can try different combinations of key ingredients to create new, cost-efficient menu items. Consider the specialty pizza example again: If the data shows that taking it off the menu would be most profitable, the restaurant operator can replace it with a new pizza that has ingredients that are already known to be profitable.
Once recipe costs are fully established, guide your clients to take the exercise even further by strategically pricing their menus. Help your clients to determine their target food cost percentages and menu prices, as well as the perceived value of their offerings, to determine how to adjust prices to maximize their margins and hit their profit targets.
Continue to Go Beyond Bookkeeping
How are your clients accounting for food costs? When’s the last time they recalculated their recipe costs? Have they considered reengineering their take-out and delivery menus to offset the costs of third-party delivery providers? Now is a great time to ask those questions to help your clients adapt to the changing landscape in the restaurant industry.
We hope that our advice for how to guide your restaurant accounting clients through inventory, vendor, and recipe management have helped you to differentiate your services and position your firm as a trusted advisor for their businesses. If you would like to continue learning about how xtraCHEF can provide detailed insights for restaurants while giving you more time to service additional clients, please feel welcome to request a demo with us at any time.
Author Bio: Libby Peck is a writer, editor, and strategist out of Philadelphia. As the Content Marketing Manager at xtraCHEF, Libby creates educational content that empowers the restaurant industry.