Opening a new restaurant is definitely not child’s play. There is so much that needs to be done; developing a business plan, arranging the finance, acquiring a suitable location, setting up the kitchen, furnishing the premises, obtaining licenses, hiring and training the staff and so on. When all the founding steps have been taken, here comes the fun part of putting together the menu.
Compiling a menu is not just about what items your restaurant offers to the customers but at what price. Your pricing strategy has a long-term impact on your restaurant’s brand image as well as the sales revenue. A price is more than just a number. The same goes for existing restaurants as well. No matter how many years your restaurant has been in business, you need to evaluate the product pricing and the factors associated with it from time to time.
In this article, we aim to tell you about the factors that you should consider while you price your products.
Calculating the Food Cost
It is obvious that before you price any item on the menu, you need to know how much money went into preparing it. In general, it is widely acceptable for the restaurants to charge three or four times the food cost. Let’s take an example of the steak dinner.
A steak dinner typically comprises of a steak, a sauce, some bread, vegetables on the side like sautéed mushrooms, peas, and French beans or a side of fries and some salad.
The steak costs you £6 and the other items that come along with it account for £2, then the total meal costs you £8. The food cost should preferably be within the limit of 35% of the menu price. So, divide the food cost by 35% to arrive at the menu price of the steak meal.
Food cost * 100 = Menu Price
£8 * 100 = £22.86
You can price the steak meal at the minimum £22.86. As we mentioned earlier, the menu price is a little under three times the cost, which is acceptable. Furthermore, you could employ a psychological pricing tactic. Instead of pricing the steak meal at £23, you could go for £22.50 or £22.99. The customers perceive £22.50 and £22.99 as £22 and not £23, making it look like a good deal. You end up making almost a pound more on each steak meal without making the customer unhappy.
£22.99 for a steak meal sounds like a lot to you because you know it actually cost you only £8. But we are yet to consider the cost of labour involved, such as the chef, the servers, the bus boy and the cleaning staff. You need to pay these folks as well and it all needs to be covered through the menu price. You also need to take into account the overheads like gas, electricity, water etc. Besides, £22.99 for a steak dinner is just the minimum that you should charge. The pricing will vary with the following factors.
- What model do you follow; table service or self-service?
- How is the ambiance of the restaurant and if it is a casual dining or fine dining establishment?
- Are your food offerings market-driven or demand-driven?
- What is the location of your restaurant, downtown or uptown?
- Who are your target customers? Are they residents, office goers, students, travelers, shoppers etc?
- Do you have a medium of entertainment such as a live band?
These are some of the major factors to consider before assigning a price to the menu item. Also, involve the staff responsible for purchasing and inventory management in the process of determining the food cost.
Exercise Portion Control Measures
For your food cost to be the same for every order, you need to implement strict portion control. If you calculated the cost at £6 for a 6 oz. steak, all the other steaks that you prepare should weigh the same. Similarly, the quantity of accompaniments like sauce, salad, vegetables and bread should be the same as well. Instruct your chefs to measure each ingredient they use with the help of the measuring cups and scales.
Lastly, involve them in the exercise of portion control. They know the best because they are the ones who actually prepare the food and know precisely how much of what ingredient goes into making a particular dish.
Have an Extensive Menu
Along with the pricey items like steak and seafood, you could offer other less costly items like chicken preparations and pizzas. This will help balance your overall menu in case the cost of ingredients for the expensive dishes rises for a while. The sale of the less expensive items would offset the burden of the increased cost.
We hope this write-up gave you an insight into how important it is to put more thought into pricing the menu items. The price should not only cover the costs but also justify the quality of the food and the entire dining experience of the customers. We will be back with some more, interesting articles about restaurant operations. Stay tuned!