food_cost

Understanding Food Costing

In Tips and Advice, Uncategorized by Josh Lingenfelter

For those who watch Restaurant: Impossible regularly, you have likely heard me ask a question to the owners: What’s your food cost? Without fail, no one really knows the cost or if they do they later find out they didn’t properly calculate it. It’s something that drives businesses into the ground. But after finding out that their food cost is so high that they are losing money every time they sell a dish, you can bet they’ll start taking the time to properly calculate it.

The majority of you reading this however, don’t own a restaurant, so have likely never thought about food costing. You shop for your groceries, make your recipes at home, and move on. Understanding the cost of your food can make a huge impact on your grocery budget, allow you to purchase more upscale ingredients, and move you away from picking up fast foods that may seem cheap and easy, but are actually more expensive (and often less healthy) than making it yourself.

So where do we begin? Well, first we have to understand a little basic math. Let’s use something easy to begin with: a package of hot dogs. Now, this isn’t a recommendation to go out and stuff yourself with hot dogs, but it does make for an easy illustration.

A standard package of brand name hot dogs (all beef of course!) costs between $2.50 and $4.00. For the ease of illustration, we’ll use $4.00.

Typically, a package of hot dogs is 1 pound and has 8 hot dogs included. If we want to break down the cost per hot dog, we can use basic math to do so.

$4.00 per package/8 hot dogs per package = $0.50 per hot dog

We can also calculate this in a different way by looking at cost per ounce.

1 pound is equal to 16 ounces. Since we have 8 hot dogs, we can calculate ounces per hot dog as

16 ounces/8 hot dogs = 2 ounces per hot dog

Since we already know each hot dog is $0.50 we can now calculate cost per ounce as

$0.50 per hot dog/2 ounce per hot dog = $0.25 per ounce

(Alternately we could calculate $4.00 per package/16 ounces = $0.25 per ounce. This will come in handy when looking at things like chicken and steak, where we don’t have individual units, but instead a large portion that we break down into smaller portions.)

So now we know the cost of the hot dog, but its doubtful that you ONLY eat a hot dog with nothing else.

Let’s add some additional ingredients to this:

Hot Dog Buns: 8 per package. $2.00 per package
Ketchup: 32 ounce bottle. $3.00 per bottle
Mustard: 32 ounce bottle. $4.00 per bottle
Onions: 3lb bag. $5.00 per bag

Now, here is where things will get interesting, and if you like math a lot of fun! With each separate ingredient we can break the cost down per unit to derive how much the meal will cost. If we solely look at our grocery bill it would appear that the cost of the meal is $18.00. Unless you plan on putting an entire bottle of ketchup and mustard and 3 pounds of onions on 8 hot dogs, our actual cost is much lower.

Let’s break it down:

Hot Dogs: $4.00 per package/8 per package = $0.50 per unit
Hot Dog Buns: $2.00 per package/8 per package = $0.25 per unit
Ketchup: $3.00 per bottle/32 ounces = $0.09 per ounce or $0.045 per tablespoon*
Mustard: $4.00 per bottle/32 ounces = $0.13 per ounce or $0.065 per tablespoon*
Onions: $5.00 per bag/3 pounds = $1.67 per pound/16 ounces per pound =$0.10 per ounce or $0.05 per tablespoon*

*1 tablespoon = 0.5 ounces

So when we add it all up, one hot dog in a bun with ketchup, mustard and onions is

$0.50 + $0.25 + $0.045 + $0.065 + $0.05 = $0.91 per hot dog.

Remember when we said the grocery bill was $18.00? Compare that to the cost of serving up all 8 hot dogs

$0.91 per hot dog x 8 = $7.28

Let’s add some potato chips to the equation

Bag of potato chips = $3.00 per bag / 8.5 ounces per bag = $0.35 per ounce

And some sliced apples

3 pound bag of apples = $5.00 per bag / 3 pounds per bag = $1.67 per pound / 16 ounces to a pound = $0.10 per ounce

If we assume your serving of apples is 4 ounces (about a ½ cup) and your potato chips are 1 ounce our new per serving cost is

$0.91 per prepared hot dog + $0.40 per apple portion + $0.35 per chip portion = $1.66 per person or 8 servings at $13.28.

Let’s pretend your own kitchen is a restaurant (be thankful its not, even though it may feel like it!). On Restaurant: Impossible you often hear me say food costs should be 30%. If you were to put a “price” to this dish in your “kitchen restaurant” you would calculate it as follows:

Price X 30% = Cost of food or inversely, Price = Cost of food/30%

In the case of our hot dog, chips and apples that would be Price = $1.66/30%

Final price = $5.53 or for the sake of round numbers $6.00.

Not an unrealistic price actually if you consider you aren’t buying 1000 hot dogs at a bulk rate.

Next time you visit a grocery store, you’ll actually find that the stores are helping you in this calculation process already. The majority of major chain groceries list the cost per ounce or per pound right on the price tag. This can also help you make quick price comparisons when looking at which brands to buy or which size.

food_cost_per_unit

So now that you’ve learned how to cost out servings what can you do with it? In future articles, I’ll tackle that subject and look at how you can take your grocery budget to substitute the foods you really want (like steak or fresh salmon!), buying larger more expensive packages to reduce your costs per unit, and how those fast food meals compare in price to just making it fresh and healthy at home.

Until then, why not try costing out YOUR favorite recipe! You can let me know what kind of numbers you come up with on Facebook or Twitter.