One of the key metrics in food and beverage operations is menu pricing. When done correctly your customers will have a higher perceived value for the food they receive verses the money they pay for it while also making a profit for the business. Do you understand how to price your menu? We will cover the math involved and some key items to keep in mind.
To figure out how much to charge for meals you first need to understand your target audience and industry. The food cost will vary from fine dining, full service, quick service, food trucks, supermarket deli’s, and convenience stores. Operating in each of those sectors will also determine how much labor is involved to execute the dish. The main goal is to keep food cost plus labor below 60%. Labor will be a topic covered in another post.
Most restaurants will have have a food cost range of 30% give or take a few percentage points. You can figure out how much your food cost is by using this formula. If the price to make a dish is $5, then charge 3 times this amount at $15 and it will give you a food cost of 33%.
Food Cost = Price it costs to make the dish divided by the price it’s sold to the customer for.
To figure the price to make a dish you are only factoring in ingredients, not any labor. Using a burger as an example. How much does a single patty cost, plus the bun and a slice of cheese. It takes some upfront work to come up with menu costs but the pay off will ensure you are charging enough to make your business profitable.
You will need to think in terms of weight verses individual counts depending on certain products. Say a single pound of hamburger meat is $3 and you sell burgers with a quarter pound of meat. You want to divide $3 per pound of meat by 4 to get a quarter pound patty cost of $.75. Then you buy an 8 pack of burger buns for $4. You would divide the $4 cost of the buns by 8 to get a price of $.50 per bun. Last we have the sliced cheese. If it comes sliced at $5 for 20 slices you would divide the $5 cost by the number of slices, being 20 in this example makes the cost $.25 per slice of cheese.
To tie this all together, you have a $.75 patty, a $.50 bun and a $.25 slice of cheese for our burger. This makes the total cost of the burger $1.50. You would want to sell this burger for 3 times the cost amount for $4.50. Leaving you a 33% food cost margin meaning you have a 66% profit margin or $3 per each burger sold!
It is important to put prices at the end of menu descriptions so customers see the value of what all comes with the purchase. You also want to build in up selling items with great profit margins. For our burger example french fries, onions rings, soft drinks, and milk shakes would be great additions to make it meal.
Another good tactic is to make full meal options on the menu slightly cheaper then buying all items individually. It encourages the customer to get a total meal package. It may mean a slightly lower profit margin, but they are now spending more money meaning more total profit dollars in your pocket. Menu building is a science. Make sure you don’t over charge or people may not return, but you can’t give away the farm or else you go out of business.
Also keep in mind not items will have the exact same mark up in price. Some may have a 25% cost while others will have a 35% cost. That is how most places have a balanced menu that is priced at similar price points. Take meals deals as an example, where multiple options all have the same price but each option does not have the same food cost or profit margin built in to it. The meal deals make it easy on the customer to decide what to get instead of trying to memorize all the prices when choosing.
Great food; served fast; in a clean environment; that is priced well always wins repeat business.
I hope you found this post helpful. My mission is to make operations easy to understand. It would be a huge blessing to me if you would take a moment to share this post on your social media sites. If you have any questions or comments please don’t hesitate to share them below. I look forward to hearing from you.
P.S. Don’t forget to follow me on my social sites to stay connected.