Making your own basic ingredients can save money, but only if you calculate the real costs correctly. Many restaurants craft their own bread, sauces or pasta without knowing whether this actually costs less than purchasing. Here's how to calculate the true financial value of in-house production.
Why calculating in-house production matters
In-house production always looks cheaper at first glance. You see the ingredients, but not the hidden costs. Labor costs, energy consumption, and waste add up quickly. Without proper calculation, you're flying blind on profitability.
- Labor costs: time of your chef or kitchen staff
- Energy costs: oven, mixer, refrigeration equipment
- Waste: failed batches, leftover product
- Opportunity costs: what else could you accomplish instead?
The full cost price of in-house production
A fair comparison includes all costs, not just the ingredients. This is a pattern we see repeatedly in restaurant financials - operators underestimate true production costs by 40-60%.
💡 Example: Baking your own bread
You bake 20 loaves daily for your restaurant:
- Ingredients (flour, yeast, salt): €0.80 per loaf
- Labor costs (2 hours at €18/hour): €1.80 per loaf
- Energy costs (oven 3 hours): €0.15 per loaf
- Waste (5% failed): €0.05 per loaf
Total cost price: €2.80 per loaf
Compare this to purchasing from your baker: €2.20 per loaf. Your in-house production costs €0.60 more per loaf!
Calculate labor costs accurately
This is often the biggest cost item that gets overlooked. Don't just calculate the hourly wage - include the real cost of employing staff.
- Gross hourly wage: what you pay out
- Employer contributions: add 30% for social charges
- Indirect costs: vacation pay, sick leave coverage
⚠️ Note:
Calculate with the real cost of staff, not just the net hourly wage. At €15 net, you're often paying €22-25 per hour in total employment costs.
Include opportunity costs
If your chef spends 2 hours baking bread, they can't do other revenue-generating activities. These missed opportunities cost money too.
- Mise-en-place for evening service
- Developing profitable new recipes
- Managing inventory and ordering
- Training team members
Ask yourself: what generates more profit? Baking bread or investing this time in high-value activities?
Calculate the break-even point
At what volume does in-house production become financially viable? This depends on your fixed and variable costs.
💡 Example: In-house pasta sauce
Comparison per liter:
- Ready-made purchase: €3.50 per liter
- In-house production ingredients: €1.20 per liter
- Labor costs (15 min at €25/hour): €6.25 per liter
- Energy costs: €0.30 per liter
In-house production costs €7.75 per liter - more than double the purchase price!
In this case, purchasing makes more financial sense, unless your sauce quality justifies a higher menu price.
Factor in quality premium
In-house production can justify higher menu pricing. Calculate whether this premium covers your extra costs.
- Can you charge €2 more for 'house-made'?
- Do more customers visit because of the quality?
- Does it reduce other ingredient needs?
Only if the total added value exceeds the extra costs is in-house production financially sound.
Practical decision-making framework
Create a simple comparison for each product you're considering:
- Step 1: Calculate full cost price of in-house production
- Step 2: Compare with ready-made purchase price
- Step 3: Assess if quality difference justifies higher menu pricing
- Step 4: Make your decision based on complete financial picture
⚠️ Note:
Don't forget the time investment for recipe development, staff training, and maintaining consistent quality. Spread these one-time costs over your expected production period.
How do you calculate the financial value of in-house production?
Gather all costs of in-house production
Note ingredient costs, labor costs (including employer contributions), energy costs and expected waste. Calculate with real hourly costs of staff, not just the net wage.
Determine the purchase price of the alternative
Check what it costs to buy the same ready-made product from suppliers. Compare quality and shelf life fairly.
Calculate the difference in total costs
Subtract the purchase price from your in-house production costs. A positive number means in-house production is more expensive. Also calculate whether a quality difference justifies a higher menu price.
✨ Pro tip
Track your 3 highest-volume in-house items for exactly 30 days, recording all costs including failed batches. If these aren't saving you at least 20% compared to purchasing, eliminate them and focus your kitchen's energy on profit-driving activities.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Should I include depreciation of equipment in my calculations?
Yes, if you've purchased specific equipment for in-house production. Divide the purchase costs over the expected lifespan and production volume. For a €2,000 mixer used solely for bread production over 5 years, that's €400 annually to factor in.
How do I calculate labor costs if my chef is scheduled anyway?
Calculate with opportunity costs: what else can your chef accomplish in that time? Mise-en-place, recipe development, or team training often generate more profit than basic ingredient production.
At what production volume does in-house become profitable?
This varies by item, but generally you need high volume to offset labor costs. For bread, you'd typically need to produce 50+ loaves daily. For sauces, 20+ liters weekly might be your break-even point.
How do I factor in inconsistent batch sizes?
Calculate your average batch yield over 4 weeks, including failed batches. If you aim for 20 loaves but average 18 successful ones, use 18 as your baseline for cost calculations.
Should I include waste even with experienced staff?
Absolutely. Even experienced chefs have off days. Calculate 2-5% waste for routine products and 10-15% for new recipes or when training seasonal staff.
How often should I recalculate these numbers?
Review quarterly or when major cost changes occur - labor rates, ingredient prices, or energy costs. Inflation can quickly shift your break-even calculations.
What if my in-house product is central to my brand identity?
Brand value can justify higher costs, but quantify this benefit. If your signature sauce drives 15% more customers who spend €5 more per visit, factor this revenue increase into your calculations.
⚠️ EU Regulation 1169/2011 — Allergen Information — https://eur-lex.europa.eu/eli/reg/2011/1169/oj
The allergen information on this page is based on EU Regulation 1169/2011. Recipes and ingredients may vary by supplier. Always verify current allergen information with your supplier and communicate this correctly to your guests. KitchenNmbrs is not liable for allergic reactions.
In the UK, the FSA enforces allergen regulations under the Food Information Regulations 2014.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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