Creating a delicious menu is one of the most exciting and satisfying parts of running a restaurant but ensuring that menu is profitably priced may be even more important for ensuring your business is a success. Don’t just ballpark the pricing on your menu items. Estimating your margins or selecting price based on competitor’s offerings can cause real problems for your bottom line. Experts say that a smartly-executed menu engineering plan can increase your profits by 10-15% on an ongoing basis. That can really add up.
Here are 7 steps for effectively pricing your menu for profit but be warned…there’s a bit of math involved. Another option is to use automated restaurant software that lets you easily engineer more profitable menus by analyzing demand, costs, and margins on individual menu items.
1. List Your Ingredients
Once you have your dishes planned, break them down by essential ingredient (the ingredients that you use the most or cost the most). List those ingredients along with their costs. This will help you with the next step.
2. Cost Your Ingredients Per Dish
If you are just starting out, you’ll need to cost out your dishes by measuring the amount of ingredients used in the dish divided by the total cost of that ingredient.
If you have been operating for at least a few months, another method to employ is “cost of goods sold (COGS)”. COGS = (beginning inventory) + (purchases sold during a set time period) – (inventory at the end of the period).
3. Measure Ingredients Per Portion
List all the ingredients that go into one specific dish and figure out how much those ingredients cost per portion. For example, a hamburger might include a ¼ lb of ground beef, 1 bun, 1 lettuce leaf, 1 slice of American cheese and a tomato slice. If you price out each of those items per portion and add them together, that represents your ingredient cost for the hamburger. Then you will want to mark-up that cost to figure in labor, packaging, utilities, etc. Decide on a percentage for mark-up and add that into your cost per dish.
4. Determine Food Cost Percentage
This is an easy one. Once you’ve completed step 3 and you know how much a certain dish costs, divide that number by the menu price of that item. For example, if your burger costs $3 to make, and you sell it for $10, your food cost percentage is 33%. You want to make sure that number is high enough that you are covering your time and labor to make the food, but not so high that you are pricing unfairly.
5. Calculate Profit
Determining your profit for a dish is simple. Price of Dish – Food Cost = Profit for Dish. In the above example, your profit for your hamburger would be $7.
6. Categorize Your Dishes
Again, once you have been operating for a while, your sales report will help you put each of your menu items into one of four categories:
Most profitable and most popular
Least profitable and most popular
Most profitable and least popular
Least profitable and least popular
This will help you identify the dishes that are driving traffic and profit and the ones you may want to consider replacing with something else.
7. Engineer Your Menu
Menu engineering is a whole science that will let you place your most popular or profitable dishes on your menu in ways that attract the most attention and will increase orders of those items. Be strategic in how you engineer your menu to make the most of your best dishes. With appropriate pricing and strategic menu engineering, you can maximize your profit and even minimize food waste.
Manually pricing your menu can be a lengthy process. To take your strategy to the next level, consider utilizing automated software that can integrate your food costs, recipe utilization, portion size, and even dish popularity to help you identify the best pricing strategy for your menu. These automated tools can help you quickly and efficiently realign pricing with cost adjustments or portion resizing, so you don’t have to keep doing the math.
Restaurant Magic has been providing advanced software solutions to the restaurant and hospitality industry for over 20 years. The robust Data Central Management Suite, the flagship product, is a powerful and flexible application that takes advantage of the latest technology trends to offer premier processing and analytics. With advanced forecasting, predictive scheduling and mobile technologies, Restaurant Magic has something for every problem. To learn more about Restaurant Magic and its products, call us at 1(800) 933-4711 or visit the website at RestaurantMagic.com.