How to Price Your Menu
When you open a new restaurant, one of the most exciting duties is writing the new menu. As you decide what you’ll offer, you create your brand and establish your place in the local economy.
It’s not enough, though, to know what you want on the menu. You also have to consider how you’re going to price each item.
Price your various menu offerings too high, and you risk selling less of each dish. Price them too low, though, and you damage the profitability of your establishment. Eventually, this could drive you out of business.
So where’s the middle ground?
Here’s what you need to know about pricing your menu items the smart way.
Factoring in Food Cost
Food cost is one of the most significant considerations in menu pricing. By definition, “food cost” refers to the price of a dish on your menu, compared to how much the food used to prepare it costs you. As such, the prices you pay for various types of food will influence your overall menu pricing.
While food cost varies depending on season and items, it’s usually around 30-35 percent. In the real world, this means that an item you paid $1.00 for should sell for about $3.35.
While some restaurant owners are uncomfortable with this markup, it’s critical to remember that “food cost” charges also include things like preparation, serving and cleaning up after patron’s meals. At the end of the day, your menu prices pay the bill for everything that goes on in your restaurant, so it’s essential to price them accordingly.
Wondering what makes some restaurants more successful than others? One obvious factor is portion control. When a restaurant has a handle on portion control, it means each dish gets the same helping of ingredients. This, in turn, keeps costs in check and protects profitability.
While portion control is one of the best ways to ensure accurate and fair menu pricing and keep your dishes from digging into your bottom line, it also requires precision. Precise portion control means that everything that goes out of your kitchen must be measured. Items like beef, chicken, and fish will need to be weighed, while shredded cheese and similar toppings can be stored in pre-measured containers.
While some restaurants move away from strictly measured portion control as they gain experience and prominence, it’s always a good idea in the beginning. If you find you have a hard time with portion control, consider buying pre-measured ingredients, such as burger patties and steaks. While the upfront cost will be higher, it may save you money in the long run.
Creating a Balanced Menu
Now that you know about portion control and food cost, it’s time to get to work building a balanced menu that appeals to your diners. In many ways, this is easier said than done.
Sure, food cost is an essential consideration, but what are you supposed to do about the fact that it changes with the seasons, weather and global economy? While you might be able to buy lettuce for $10 a case in one season, it could easily be $40 a case just a few weeks later. As a restaurant owner, you have very little control over these price jumps.
(Having a price-alert system to help you monitor and anticipate price fluctuations can save you thousands of dollars a year.)
The only avenue left to you, in this case, is to balance your most expensive menu items with less expensive items boasting stable prices. When you do this well, it keeps your desired food costs within range. Chicken and pasta dishes are notoriously stable in price and can help offset pricier, more exotic dishes like lobster and fresh beef.
Menu Pricing in the Real World
Here’s an example of the process an actual restaurant might go through when pricing its menu:
The restaurant is serving Filet Mignon on its dinner menu.
The beef filet currently costs $6 per portion. The sides for the dish, including the baked potato, vegetable dish, bread roll, and salad, cost a total of $2.50.
Therefore, the cost of the complete meal is $8.50 to the restaurant.
That’s not where it ends, though. If the restaurant decides to alter the dish in any way, say by wrapping the beef in bacon and smothering it in herb butter, the cost of the dish will increase accordingly.
To figure out what this dish should cost, the restaurant in question will use the following equation:
Cost of product/.35= menu price
In this case, that breaks down to $8.50/.35 = $24.29
More likely than not, though, that won’t be the restaurant’s final price. While $24.29 is the bare minimum the restaurant could sell this dish for while remaining profitable, most restaurants will bump the price up enough to keep their food costs below 30 percent, which helps increase overall profitability.
Smarter Pricing Starts Here
Fewer things have a larger impact on your restaurant’s bottom line than your menu prices. As such, it’s critical to ensure you’re pricing your menu items correctly. By taking food cost, portion control, and item balance into account, it’s easy to build a functional menu that helps your restaurant grow and increase its bottom line for years to come.