Does Restaurant Labor Cost Belong in a Recipe Costing Card?

The question of whether labor belongs in a recipe costing card is a frequent topic at my speeches, seminars, and workshops where I teach restaurant owners the ropes of managing their costs effectively. I want to answer this burning question and explore why labor should be kept separate from your recipe costing cards.

First things first, let's address the question directly: Does labor belong in a recipe costing card? The short answer is no. Labor should not be directly calculated into the cost of your recipes, and here's why.

Many restaurant owners often make the mistake of including labor cost directly in their recipe costing cards. While labor is undeniably a significant expense in the preparation of a dish, it should not be factored into the cost of ingredients. Recipe costing cards are specifically designed to calculate the cost of the ingredients used in a dish, aiding in accurate menu pricing and determining the ideal food cost.

Food cost, or the cost of goods sold (COGS), is a critical metric for restaurants. It represents the cost of the goods put on the plate compared to the revenue generated from selling those dishes. This is a crucial figure for determining profitability. However, labor is not a product that is sold directly to the customer, making its inclusion in recipe costing inappropriate.

Let's be clear about labor costs—they are variable expenses influenced by factors like skill, speed, and efficiency of your kitchen staff. The variability of labor costs becomes evident when considering factors such as overstaffed days, where employees may stand around with less to do, or understaffed days when the team is working at maximum efficiency.

So, if labor doesn't belong in recipe costing cards, where does it fit? The answer lies in restaurant prime cost—a term often emphasized by restaurant management experts. Prime cost includes the total COGS plus total labor costs, which includes taxes, benefits, and insurance.

For effective management, understanding and focusing on restaurant prime cost is crucial. If your restaurant generates under $850,000 a year in gross sales, your target prime cost is 60% or lower. For restaurants exceeding this threshold, the target drops to 55% or lower.

Effectively managing prime cost involves scheduling the right staff at the right times, training for efficiency, implementing leadership, creating systems, and enforcing accountability. By concentrating on prime cost, you gain better control over financial management, allowing you to identify issues such as overused or underused products and take corrective actions.

Separating labor costs from recipe costing cards provides greater accuracy in menu pricing and enhanced financial management. By concentrating on managing your restaurant prime cost, you pave the way for financial freedom and prosperity in your restaurant business. So, next time you're tempted to factor labor directly into your recipe costing, remember the key to success lies in understanding and managing prime cost effectively.

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