How much will custom production actually save you? While suppliers promise lower per-unit costs, the real margin calculation involves development fees, minimum orders, and storage risks. Most restaurant owners miscalculate these hidden expenses.
What is custom production?
Custom production means having a supplier manufacture products exclusively for your restaurant. You might order your signature sauce, pre-portioned proteins, or a unique spice blend. While this often reduces unit costs compared to standard purchasing, it introduces additional expenses and operational risks.
💡 Example:
Your restaurant uses 50kg of specialty spice blend weekly. Current cost: €12/kg = €600/week.
A supplier offers custom production at €8/kg, but requires 200kg minimum orders.
That €4/kg difference looks attractive, but what's the real savings?
All costs of custom production
Custom production involves more expense categories than regular purchasing:
- Product costs: The supplier's quoted price per unit
- Development costs: One-time fees for recipe creation and testing
- Minimum order requirements: Purchasing beyond immediate needs
- Storage costs: Interest, warehousing, and spoilage risk
- Quality control: Additional inspection time and costs
Calculating real cost price
Your actual cost per unit exceeds the quoted product price due to these additional expenses. A pattern we see repeatedly in restaurant financials is underestimating storage and quality control costs by 30-40%.
Real cost price = Product price + (Development costs / Total volume) + Storage costs + Quality control
💡 Example calculation:
Spice blend custom production:
- Product price: €8.00/kg
- Development costs: €2,500 (recipe development and testing)
- Expected annual volume: 2,600kg (50kg × 52 weeks)
- Storage costs: €0.50/kg (warehousing, interest, spoilage risk)
- Extra quality control: €0.25/kg
Development costs per kg: €2,500 / 2,600kg = €0.96/kg
Real cost price: €8.00 + €0.96 + €0.50 + €0.25 = €9.71/kg
Comparison with standard purchasing
Compare against your current situation, including all operational benefits:
- Cost price difference: True custom price vs. current purchase price
- Quality: Product improvements or compromises
- Supply reliability: Delivery consistency and backup options
- Flexibility: Ability to adapt for seasonal changes or trends
⚠️ Note:
Development costs only apply to the first year. If you continue using the same product beyond twelve months, these per-unit costs decrease significantly.
Impact on your food cost
Custom production can reduce your food cost, but calculate this impact realistically:
💡 Impact calculation:
Current situation: €12.00/kg × 2,600kg = €31,200/year
Custom production: €9.71/kg × 2,600kg = €25,246/year
First year savings: €31,200 - €25,246 = €5,954
Year two onwards (minus development costs): €8.75/kg = €7,800 annual savings
Risks and pitfalls
Custom production introduces risks that can erode your margins:
- Quality variations: Batch-to-batch inconsistency
- Supply problems: Limited alternatives if supplier fails
- Minimum orders: Excess inventory leads to waste
- Price increases: Suppliers can raise prices mid-contract
Smart custom production decisions
Custom production makes financial sense in these scenarios:
- You consume large volumes of the same product (>1,000kg annually)
- The product is integral to your concept's uniqueness
- You have consistent sales with predictable demand
- Total savings exceed 15% after accounting for all costs
⚠️ Note:
Begin with a short test period. Don't commit to annual contracts until you've verified quality consistency and logistics performance.
Administration and monitoring
Track all expenses to verify custom production delivers promised savings:
- Actual orders compared to planned volumes
- Quality complaints and product returns
- Waste from surplus inventory
- Time invested in additional quality control
Food cost management systems help you monitor these expenses per ingredient and determine if custom production genuinely reduces your overall food cost.
How do you calculate the margin with custom production?
Gather all cost prices
Note the product price per kg, development costs, minimum order, and your expected annual volume. Also ask about storage and quality control costs.
Calculate real cost price per kg
Add to the product price: development costs divided by annual volume, storage costs, and extra quality control. This is your real cost price.
Compare with current purchasing
Subtract your real custom cost price from your current purchase price. Multiply by your annual volume to see the total savings.
Calculate impact on food cost
Divide the savings by your annual revenue to see how many percentage points your food cost drops. Check if this outweighs the extra risks.
✨ Pro tip
Focus custom production on ingredients representing over 8% of your total food cost within the first 18 months of partnership. Smaller-impact items rarely justify the additional complexity and risk management required.
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
From what volume does custom production make sense?
Typically from 1,000kg annually, though this depends on development costs. Higher development fees require greater volume to reach break-even. You'll also need consistent demand to justify minimum order requirements.
Should I include development costs if the supplier doesn't charge them separately?
Absolutely. Even when suppliers don't itemize development costs, they're embedded in the product price. Always account for them across your projected total orders to get accurate cost calculations.
What if I order less than planned?
Your real cost price increases because development costs spread over smaller volumes. This commonly happens with seasonal menu changes or declining sales. Make conservative volume estimates and build flexibility into contracts.
How do I prevent quality issues with custom production?
Start with small test batches and establish detailed specifications upfront. Inspect every delivery and document any issues. Build quality standards and penalty clauses directly into your supplier contract.
📚 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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