The right restaurant meal prices determine success. Pricing the food directly influences the amount of money you’re left with for almost everything in your firm, which includes utilities, equipment, furniture, employees, ingredients, etc. Determining restaurant meal prices entails careful consideration of profit margins, markup, menu psychology, and food costs.
Menu Pricing’s Impact on Gross Profit Margins
Gross profit margin is the money you’re left with after covering typical business costs. For maintaining healthy profit margins, you should categorize every dollar made into three primary areas: salaries and wages; food and beverages; and occupancy expenses such as insurance, taxes, and rent. This would roughly break down to 30 percent labor costs, 30 percent food and beverage expenses, and 20 percent occupancy costs, leaving behind a net profit of 20 percent.
Markup Factor and Menu Pricing
To create an appropriately priced menu, it’s imperative to learn what a markup is and its role in restaurant pricing. Basically, ‘restaurant markup’ is a phrase referring to the total money added to unit cost for covering overhead expenses. Simply put, pricing markup means a business purchases or makes goods at a particular price and later sells those items at an increased price to net in profits. All products and services are subjected to markup.
Food Cost Calculation for Pricing Menu Items
Accurate calculation of food costs for every dish on the menu is essential to price food and make maximum profit. Remember, buying raw materials in bulk isn’t always necessarily the best decision. If you are extremely certain about using up all the ingredients before they get spoiled, you would most probably end up providing customers bigger portions. Once the ingredients are exhausted, you would be forced to reduce the portions to normal levels, which would only disappoint your regular customers. For ensuring portion size consistency, use measuring cups, scales, and other equipment that let you portion signature dishes properly.
Menu Pricing Psychology
While accurate calculations on profit margins, markup, and food expenses are extremely important, you should also take into consideration menu psychology when pricing meals. There are certain factors that you should be aware of when menu-pricing. Customers are constantly aware of how much they are willing to shell out for food, even sub-consciously. Therefore, the average living cost of your area should be considered when pricing menu. To find out how much your customers can truly pay, look how your competitors are pricing their menus.
Conclusion
Irrespective of what restaurant business you are into – nightclub, cafeteria, or buffet – knowing the right way to price the menu is a skill every restaurant owner should have. By accounting food markup, food cost, menu psychology, and profit margins, assigning prices to specific dishes would become easier. At the end of the day, sales is the biggest determinant of your restaurant business’ profitability and health. If you don’t price your menu right, sales would be the first thing to take a hit. Other aspects such as goodwill, buyer loyalty, brand value, etc. would follow suit.
