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Menu pricing: Experts’ answers to the most common questions

August 18, 2019

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Menu pricing is the key to success as it determines whether you will get profits or not. It directly affects your profitability. In this article, we will show you the most common questions about menu pricing and we will introduce the best answers from our experts.

 

1. What should you take in mind when pricing your menu?

To ensure profit you should consider these factors when you price your menu:

  • Food cost.
  • Portion control.
  • Local market and competitors.
  • The balance between expensive and inexpensive items.

 

2. What expenses should menu pricing include other than food and beverage costs?

  • VAT: value-added tax (if applied)
  • Labor costs.
  • Energy costs.
  • Occupation costs.
  • Time of preparation.
  • Packaging.

 

3. Where should you pay special attention to avoid any mistake when pricing your menu?

When pricing your menu make sure to involve your chefs in the process, as they will give you accurate data about portions and ingredients, so you will avoid any mistake that may arise if you fail in:

  • Determining the type of food used to prepare a specific drink or meal.
  • Determining the exact amount of ingredients used to prepare a specific drink or meal.
  • Determining the quality of raw materials used to prepare a specific drink or meal. Be aware that if you use raw materials with low quality, you will have much more waste, resulting in miscalculating food cost from the beginning. So make sure you use high-quality raw materials to ensure less food waste and more revenue.
  • Determining the quantity of potential drip loss when preparing a specific drink or meal, which may happen throughout cleaning, cutting, formatting, cooling, storage, cooking, frying, and baking. For example, as 34% of the total fresh meat is lost during cooking, you have to use 600 grams of freshly cleaned steak to produce a portion of 396 grams of roasted beefsteak, and hence you include the cost of 600 grams, not 396 grams.
  • Determining the accurate amount of spices, which can be done correctly by calculating the number of spices needed to prepare 10 portions then dividing this amount with 10 to find the cost of this ingredient per portion.
  • Determining the portion size introduced to the customer: you can control portions sizes by educating your staff to use particular measurements.

 

4. How to calculate your restaurant menu prices?

Experts use two methods to calculate menu prices. We will show you these two methods, and you can choose the one you find appropriate.

 

A) Calculating menu prices using food cost percentage:

Food cost percentage is the portion of revenues you spend on food. Follow these steps to calculate your menu prices according to this method:

  • Select your ideal food cost percentage:

This percentage should range from 25% to 35% of your total revenue and no more.

  • Calculate the cost of raw materials used in preparing every menu item:

For example, if your menu includes a hamburger sandwich, then the total cost shall include the cost of meat, lettuce, bread, tomato, ketchup, and every other ingredient used to prepare this sandwich.

  • Calculate the price:

You can use this formula to calculate your price:

Price = raw material cost of the item/food cost percentage.

For example, if your food cost percentage is 30% and the raw material cost of the hamburger sandwich is 5$, then, according to the above-mentioned formula, the price of the hamburger sandwich shall be:

Price = 5$ / 30% = 16.67$

Which can be modified to be 16.5$ or 16.99$.

B) Calculating menu prices using gross profit margin:

Gross profit margin is the difference between the revenue of the item and its cost divided by its revenue. It represents the profit made from your sales. Follow these steps to calculate your menu prices according to this method:

  • Select your ideal gross profit margin:

If you choose a gross profit margin of 50% on a specific item, it means that from every earned dollar you will have 5 cents as a pure profit of this item, where the rest will be spent on food cost and other expenses.

  • Calculate the cost of the raw materials as discussed above.
  • Calculate the price:

You can use this formula to calculate your price:

Ideal Gross Profit Margin = (Menu Price – Raw Food Cost) / Menu Price.

For example, if your ideal gross profit margin is 70%, and your raw material cost is 5$, then, by applying the above-mentioned formula, your price shall be:

70% = (Menu price – 5$) / Menu price.

After solving the equation, Menu price = 16.67$.

You can use the sheet below to estimate your menu prices.

menu pricing

 

5. How would you keep up with prices’ changes in the market?

The answer is simple: SEASONAL menu.

Never change your menu prices. Alternatively, you can change your menu items according to the season. Keep the main dishes and change appetizers, salads, side dishes, desserts, and fresh juices.

 

6. How will your competitors affect your menu pricing?

You can choose one of the following strategies to price your menu according to your competitors’ prices:

A) Price the item as your competitors do, when you are serving the same target customer, using the same quality.

B) Price the item slightly lower than your competitor to attract customers looking for lower price regardless of quality.

C) Price the item higher to attract customers looking for higher quality. It will work.