While some restaurants default to making everything from scratch, others buy pre-made products without question. The smart approach lies between these extremes. Your inventory data reveals the true costs and helps you choose the most profitable path for each product.
The make-or-buy decision
Every product you can make or buy requires comparing three costs: ingredients, labor, and inventory expenses. The cheapest option wins, but hidden costs often surprise you.
💡 Example: Tomato Soup
Making in-house (10 liters):
- Ingredients: €12.50
- Labor (2 hours at €18): €36.00
- Inventory costs: €2.50
Total: €51.00 = €5.10 per liter
Buying in: €4.80 per liter
Conclusion: Buying in is €0.30 per liter cheaper
Calculate the real costs of making in-house
Most restaurant owners forget labor costs entirely. That chef spending 2 hours making soup? They're costing you €36 at €18/hour. Don't ignore this expense.
Formula for total in-house costs:
Ingredients + (Labor hours × Hourly wage) + Inventory costs
⚠️ Watch out:
Calculate using actual hourly wages including employer contributions. A chef earning €15/hour gross actually costs you roughly €18/hour total.
Include inventory costs
Making in-house means purchasing and storing ingredients. These expenses add up quickly:
- Cold storage: Around €0.15 per kg weekly
- Waste: 5-15% of purchase value
- Capital costs: Money locked in inventory
💡 Example: Calculate inventory costs
You store €500 in ingredients for 1 week:
- Cooling: €500 × 0.003 = €1.50
- Waste (10%): €500 × 0.10 = €50.00
- Capital costs: €500 × 0.001 = €0.50
Total: €52.00 weekly inventory costs
Factor in quality and consistency
Sometimes making in-house costs more but generates higher revenue through superior quality. Customers pay premium prices for fresh pasta over frozen alternatives.
Consider consistency too. Purchased products taste identical every time. But in-house production varies depending on who's cooking that day.
Season and availability
Your inventory data reveals seasonal patterns you can exploit. Tomatoes cost pennies in summer, dollars in winter. Plan your make-or-buy decisions around these cycles - a pattern we see repeatedly in restaurant financials across different product categories.
💡 Example: Seasonal strategy
Gazpacho at your restaurant:
- Summer: Fresh tomatoes €2/kg → making in-house €3.20/liter
- Winter: Tomatoes €6/kg → making in-house €7.80/liter
- Buying in: €4.50/liter year-round
Strategy: Make in-house during summer, buy in winter
Digital tools for make-or-buy analysis
Apps can automatically calculate in-house costs by combining ingredient prices, labor time, and inventory expenses. You'll instantly see which option delivers better profits.
How do you calculate make-or-buy costs? (step by step)
Gather all costs of making in-house
Add up: ingredient costs + labor time × hourly wage + inventory costs. Don't forget employer contributions in the hourly wage (approximately 20% on top of gross salary).
Calculate purchase price per unit
Divide the purchase price by the number of portions you get. Note: some suppliers charge per kg, others per liter or per portion.
Compare and decide
The cheapest option wins, but also weigh quality and consistency. Sometimes 10% more expensive is acceptable for much better quality.
✨ Pro tip
Analyze your 3 highest-volume ingredients over the past 6 months first. Getting these make-or-buy decisions right captures 70% of potential savings.
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 always include labor costs for in-house production?
Absolutely. That chef making soup can't prepare other dishes during those 2 hours. Time costs money, even without invoices. Labor represents your biggest hidden expense in make-or-buy decisions.
How do I calculate inventory costs exactly?
Calculate roughly 0.3% of purchase value weekly for cooling, plus 5-15% waste annually. So €1000 in inventory costs about €3 cooling + €100 waste per year.
What if making in-house costs more but quality improves dramatically?
You can often charge higher menu prices for superior quality. Calculate whether extra revenue offsets additional costs. Fresh pasta might cost €3 more than frozen but command €8 higher prices.
📚 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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