A downtown restaurant in Amsterdam cuts their breadcrumb costs by 75% using day-old bread from the bakery next door. By-products from neighboring businesses offer similar savings, but calculating margins becomes trickier. You'll need to factor in transport, processing time, and quality inconsistencies.
What are by-products and how do they affect your cost price?
By-products are materials one business discards that your kitchen can use. Bakeries generate bread crumbs daily, butchers have bones and trim, grocers have bruised vegetables and peels.
💡 Example:
Your meatball recipe needs breadcrumbs at €3.20/kg from suppliers. But the neighboring baker offers 5kg of day-old crumbs for €0.50/kg.
- Standard breadcrumbs: €3.20/kg
- Baker's crumbs: €0.50/kg + €0.30 handling costs
- Real cost: €0.80/kg
Savings: €2.40 per kilogram
Hidden costs of by-products
By-products appear inexpensive upfront, but carry hidden expenses you must include:
- Transport: Collection requires staff time and vehicle costs
- Processing: Cleaning, chopping, drying, or grinding labor
- Storage: By-products spoil faster than fresh ingredients
- Waste: Quality inconsistencies mean higher discard rates
- Time: Additional prep work for your team
⚠️ Watch out:
Include all hidden expenses. A pattern we see repeatedly in restaurant financials is 'free' by-products ending up more expensive than regular suppliers once you calculate actual costs.
Formula for actual cost price of by-products
Calculate the true cost using this formula:
Real cost price = (Purchase price + Transport + Processing + Storage costs) ÷ Usable weight
💡 Example calculation:
You collect 10kg of vegetable scraps from the grocer at €1.00/kg:
- Purchase: €10.00 (10kg × €1.00)
- Transport: €3.00 (fuel + driver time)
- Processing: €5.00 (1 hour cleaning at €15/hour)
- Waste: 20% (2kg unusable)
- Usable yield: 8kg
Actual cost: (€10 + €3 + €5) ÷ 8kg = €2.25/kg
Calculating margin with by-products
Once you've determined the real cost of by-products, calculate margins using standard methods:
Food cost % = (Total ingredient costs ÷ Selling price excl. VAT) × 100
Sum all ingredients: regular purchases plus by-products at their calculated cost.
💡 Example meatballs:
Recipe for 10 servings:
- Ground beef: 2kg × €8.00 = €16.00
- Breadcrumbs (by-product): 0.5kg × €0.80 = €0.40
- Eggs, seasonings: €2.60
- Total ingredients: €19.00
Sale price: €12.50 incl. VAT = €11.47 excl. VAT
Food cost per portion: €1.90 ÷ €11.47 = 16.6%
Risks of by-products
By-products can boost margins but introduce risks:
- Inconsistent quality: Each delivery varies in condition
- Supply uncertainty: Suppliers may reduce availability or stop entirely
- Food safety: Higher contamination risks require extra vigilance
- Seasonal changes: Availability fluctuates throughout the year
Always maintain relationships with regular suppliers as backup options.
Administration and registration
Document by-products more thoroughly than standard ingredients:
- Collection date and time stamps
- Weight and quality assessment on arrival
- Temperature readings for perishables
- Waste percentages per batch
- True costs per kilogram
Food cost management systems allow you to track different prices for the same ingredient, so you can monitor both regular suppliers and by-product sources.
How do you calculate the margin with by-products? (step by step)
Calculate the actual cost price of the by-product
Add purchase price, transport, processing, and storage. Divide this by the usable weight (after waste). This is your actual cost price per kg.
Calculate the total ingredient costs of your dish
Add up all ingredients: regular purchases at supplier price + by-products at actual cost price. This gives you the total cost price per portion.
Calculate your food cost percentage
Divide the total ingredient costs by your selling price excl. VAT and multiply by 100. This is your food cost percentage including the savings from by-products.
✨ Pro tip
Track one by-product type for exactly 30 days, documenting every cost and waste percentage. Only after proving it saves money over this period should you build it into your standard recipes permanently.
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
Do I have to pay VAT on by-products from neighboring businesses?
Yes, by-products count as taxable purchases requiring proper invoicing from suppliers. Food products typically carry 9% VAT. Even 'waste' materials need documentation for tax compliance.
How do I know if by-products are really cheaper?
Calculate total costs including transport, processing, waste, and labor time. Compare the final cost per usable kilogram with regular suppliers. Many restaurants find savings disappear once all expenses are included.
Can I use by-products for HACCP-sensitive dishes?
By-products carry elevated contamination risks requiring extra precautions. Check temperatures, expiration dates, and hygiene standards more rigorously. Document everything twice as thoroughly as regular ingredients.
What if my by-product supplier stops?
Maintain backup relationships with standard suppliers since by-product availability can end suddenly. Don't build permanent menu pricing around by-products due to supply uncertainty.
How often should I recalculate by-product costs?
Monthly minimum, since transport, processing, and waste rates fluctuate. If quality or availability varies significantly, recalculate weekly to maintain accurate food costs.
Should I tell customers I'm using by-products in their food?
Transparency builds trust, but focus on quality and sustainability rather than cost savings. Frame it as reducing food waste or supporting local businesses rather than using 'scraps.'
⚠️ 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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