Learn how to balance customer value, ingredient quality, overhead cost, and profit for a perfectly priced menu.
So, you already have a firm idea of the clientele you want to serve in your restaurant and the type of food you want to serve. Based on your primary customer persona (their wants, social demographics and disposable income), you should have a fair idea of how much those people are willing to pay per dish, but how do you make sure you’re charging a fair price? You need to make a decent profit without gouging your customers. Let’s take a look at the best ways to decide how much to charge for your dishes in order to benefit your business and please your customers.
Determine Food Cost Per Item
The very first thing you need to do is to work out the cost per serving of every ingredient that goes into a dish. This includes condiments, seasoning, cooking oil and garnishes. Once you’ve got these figures, you can work out the food cost of every dish.
Determine Overhead Cost Per Dish
Your overheads are everything (other than food) that it takes to get a dish out to a customer. While these costs will be a well-educated estimate, it’s important that you are as accurate as possible so that there are no surprises down the road. Account for labor, taxes, rent or mortgage, equipment leases, loans, electricity, water and any other business-related expenses. Don’t be conservative with these estimations. While accuracy is important, these figures will fluctuate and you should also remember to account for theft, spoilage, employee meals, delivery costs, returns charges and any little extras.
Once you know how much you spend per month, it’s simple enough to figure out how much you spend on overheads per day. Once you’ve got this figure, you need to estimate how many covers your restaurant completes (customers served) per day. This will vary across the week and seasonally, but take an average number. For example, if your overheads are $1,000 per day and you have an average of 200 covers, your overhead is $5.00 per person.
Do Your Research
Now that you know how much you need to make per dish to break even, you need to take a look at your competitors. Look at those restaurants that cater to the same demographics as you. If you’re serving high-end French cuisine, you don’t want to look at fast-food restaurants. Additionally, only factor in thriving businesses. Don’t include struggling ones in your calculations. Find out who your competitors are and what their price range is. Once you’ve examined your direct competitors, you can garner an average price range across all those you researched. Your dishes should fall somewhere within this price range.
Figure Out Ingredient, Overhead and Profit Percentages
It’s important to identify how much profit you want to make per dish. Sure, 100% pure profit from each dish would be fabulous, but it’s unlikely. Be realistic. What percentage of profit per item do you need to live comfortably? Industry standards tell us that food cost, overhead costs and profit should be reasonably even percentages per dish.
In our example, the overhead cost per person is $5, assuming that person is only having one course. Therefore, the food cost should also be around $5 per dish, based on industry standards, and your profit should be approximately $5 per dish. However, you don’t have to follow the industry recommendations. If your overheads are comparatively low, you may find that you spend more than a third of the dish cost on ingredients, and that’s OK. You also need to remember that the cost of ingredients can vary seasonally. Some eateries combat this by primarily offering seasonal produce while others simply factor the cost fluctuations into their calculations and use a yearly average price.
Adjust Prices or Costs
If, based on the rule of thirds, your dish’s price comes in far higher than your competitors–or far lower–you may need to think about making some adjustments. If your dishes would have to be priced far higher than those of your competitors, you may need to look at reducing your overheads or finding better prices on your ingredients. Additionally, remember to offer a selection of more costly dishes like prime steaks and lavish seafood, and budget-friendly ones like chicken and pasta dishes, as this will help balance your food costs across the menu.
Image by Yulia Grigoryeva/Shutterstock.
For more than 10 years, Katy has been working with businesses of all sizes, from Fortune 500 companies like eBay and Staples, to small and medium businesses in her local area, to exciting, cutting-edge startups in the heart of London and Silicon Valley. Her expertise in business writing include entrepreneurship, digital marketing, engagement, conversion, social strategy, content strategy, leadership, and planning. She has a stellar reputation as an outstanding freelance writer and editor, building professional relationships that last, by providing outstanding, compelling content that offers value to readers and increases audience engagement and conversion.