Restaurant Menu Pricing – do it right from the start for the best business results. Every little nuance within your menu is something that affects how the customer will respond – if they will end up ordering and in what amount. We bring you proven strategies to optimize your business’ cashflow, tested by our earlier restaurateur projects. Determine the cost of all ingredients and resources from the supplier all the way to the table. Include delivery fees, cooking costs and employee wages in addition to the cost of the ingredients.
Maximizing Profit by Perfecting Restaurant Menu Pricing
To estimate the actual cost, consider:
- Price per raw item – divide the total cost of a lot (delivery included) by the number of unprepared items.
- Preparation time and approximate cost – estimate the time and wages it takes your team to get the item ready to cook or serve.
- Cook time and approximate cost – the time and wages it takes to cook the item, as well as the energy costs associated with performing these actions.
- General clean up costs – just preparing and serving the food is not the end of the story. Whatever happens with the utensils afterwards also has a cost.
Adding these factors up will give you the base cost of your item or dish. Going through this process for every item on your menu can be time consuming, but helps you to set reasonable, profitable price points for each offering. A shortcut would be to research other restaurants with similar offerings in your area, and then experiment with prices around this range. There are probably options of software tools that help with this process greatly, like EatApp.
The Price Barrier
The term price barrier means the cost above which most middle income diners will not buy. Currently the price barrier in the United States is about $20.00 (or even better, $19.99). Unless you cater to an upscale clientele, keep this number in mind as an upper limit for the price of a single dish. Knowing this fact makes it easier to handle good restaurant menu pricing.
How to Calculate Gross Profit Margins
To facilitate menu pricing methods, being informed about how some of your dishes perform financially is very helpful:
Follow these easy steps to calculate your gross profit margins on a particular dish:
1. Subtract the unit cost (ingredients + overhead) from the menu price.
2. Then, divide the resulting number by the menu price. This is your gross profit margin percentage.
Example: Say that the menu cost of fish and chips is $15, while the unit cost is $9. So, you’d subtract $9 from $15, which is $6. Then, you’d divide $6 by $15, which is a gross profit margin of 40%.
Maintaining positive gross profit margins gives you the money you need to cover the costs associated with making and selling your restaurant’s meals. Determining reasonable and accurate gross profit margins up front will save you trouble in the long run and will also help keep your costs under control.
Also, we recommend this menu pricing calculator.
Portion Control for Expenses Control
One not so prominent among the menu pricing strategies is Portion Control.
Once all prices are set so that every dish is profitable, control for the quality of raw materials from that point onward.
The success of big restaurant chains lies mainly in control of portion sizes. Each portion should be the same size and mass. In this way, you can properly track food costs and make almost perfect calculation when creating final prices and your profit.
Tips: You can use portioning tools such as marked plates and scales to help with the portion control.
Train your staff how to use and measure ingredients while cooking and serving. Once they “tune” the portion size they would be able to serve and work with portions “by the eye,” but until then let them use scales and measuring cups!
Well Balanced Restaurant Menu Pricing
Food markets fluctuate depending on the season, the weather and the price of gas. One day lettuce may be $10 a case and then the following week it has jumped to $30 a case. There is little you can do when prices jump, short of changing your entire menu every few weeks, and who has time for that? However, when you balance expensive items, which are prone to price fluctuations, with items that have stable prices, you can help maintain your desired food cost.
So, go ahead and have some fresh lobster and beef on your menu, but temper it with some less expensively priced chicken dishes or pasta dishes.
Creating the right price point for your menu is essential for keeping costs down and sales up. Understanding the role of portion control, food cost, price points will help to create a restaurant menu pricing configuration that balances customer expectations with an affordable kitchen inventory.
The Rule of Thirds
Up to now you’ve probably realized how influential restaurant menu pricing is on your business. There is a trick that could help you.
Restaurant: Impossible on The Food Network with Robert Irvine. The show, while not being completely authoritative in the field, raised a couple of interesting points:
The tip from the host, Robert Irvine, was to triple the cost of the food to create the menu price. So you figure out the cost of the food and by tripling that number you’ll account for your other costs including profit:
Menu Price = Food Cost + Labor + Business Expenses including Profit
This formula is not precise. If you can get your margins higher you should. Customer demand comes into play as well, but this is a good basic rule when setting prices.
Businesses in a variety of industries use this formula as well. You can triple it or double it. Most businesses at least try to double or triple their money on anything they sell so it’s a good basic step for a restaurant as well.