Today I focused on finding the exact cost of all my recipes. At the beginning, I thought this task was simply going to take one or two hours to accomplish.
It took an ENTIRE DAY.
I felt like one of those people you see on TV that are figuring out their tax payments; there where papers filled with mathematical calculations everywhere (it made me look pretty smart) and I had over 10 Excel documents opened at the same time. It's not that finding the costs was hard but
it was definitely tedious.
For each ingredient, I had to find how many grams of it made either a cup, a tablespoon, or a teaspoon. I then had to find what percentage of that cup made up a bag of the ingredient sold.
For instance, a cup of sugar is equivalent to 200 grams. The bag I buy at Wong is sold at 20 soles for 5 kgs (5000 grams). So I had to first find what percentage was 200 grams of the 5000 gram bag, and multiply that number by the price of the ingredient, in this case 20 soles. The number I got was the cost for a cup of sugar, but if the recipe called for 1/4 cups of sugar I had to divide my answer by 4.
Now imagine doing that same process for
Pretty tiring right?
Nonetheless, it was definitely worth it because it allowed me to truly realize whether or not I am making profit. I was able to see which ingredients where raising the price of my recipes significantly and which recipes meant loosing more
money than generating profit.
Having the costs of my recipes has allowed me to really think realistically. Before, I wouldn't mind using a stick of butter from my business to make cookies for my house. I would use it and never return it to my business inventory. Now, however, I know that using the butter results in a significant loss in my profit.
I was reading about the importance of knowing the cost of your recipes and found that
"the rule of thumb within the fine dining industry is to maintain a 30% food cost or less".
At first, I felt like that meant charging a lot more than was necessary, but I have to "keep in mind that [I'm not] just paying for the food itself. [I'm] paying someone to prepare the food and clean up after the [production]. Everything in [my business], from payroll to the electric bill needs to be covered by the [product] I serve".
In order to have a 30% food cost, I now need to divide each of the total costs of my recipe by 0.30. For instance, I found that the cost of producing 12 Oreo Madness Cupcakes was 17 soles.
17 / 0.30 = 56.6
So if I were to follow the rule of thumb, that means that I should be charging 56 soles for a dozen of Oreo cupcakes rather than my set cost of 50 soles.
Although the difference between what I was charging and what I should be charging is not very big for the Oreo recipe, it is for the Peanut Butter Cup ones. The cost of producing 12 Peanut Butter cupcakes is 27 soles.
27 / 0.30 = 90
Believe it or not, if I were to follow the rule of thumb, I should be charging 90 soles for my Peanut Butter Cupcakes rather than the 50 I am currently charging.
Quite a difference, huh?
I do have to take into account that although I am running a small business, I don't have the same costs that a restaurant has. I don't have to pay an employee to serve the food and I don't have to pay for the location of my business, but I do need to keep in mind the electric bills and the cost of hiring an employee.
One thing I've learned from this process is that:
running a business is extremely time consuming. Thus, running a successful business means really loving what you do, because when you love what you do, it's worth your time.