Costing Out Menu Prices

If you are a manager of restaurant operations, you know that food cost is huge. Managers are constantly looking for areas to cut waste, and to make sure that the food that is ordered all gets used before it goes out of date or gets spoiled. While that is important, one of the biggest ways to affect your food cost is properly costing out menu prices.

Although costing menus is taught in every decent restaurant management training program, so many managers do a very poor job of it. Part of the problem is managers not understanding how to properly cost out a menu, and part of the problem is not understanding the art of costing a menu. It's part science and part art, and if you can strike the proper balance you will not only hit your food costs, you will have a menu full of items that your customers will perceive as a value.

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The Science of Costing Out Menu Prices

The first step in costing out menu prices is knowing what your target food cost is. If you don't know that, you need to find out. If you don't know what your target is you'll never know if you are hitting it.

Let's assume you have a target food cost of 35%. That means that for every dollar you bring in, 35-cents is going to pay for the food that was used to make that menu item. So how do you figure out whether or not your item is priced correctly on the menu?

Start by making sure all of your prices are up to date on the food that you order. Next you have to sit down with your recipe in hand and figure out the cost of all the ingredients that go into making one portion of that item.

For the sake of discussion, assume that the cost of one portion of the item costs you .50 to produce. Take that .50 and divide it by 35% (your target food cost). The result is 4.29. That means that you will need to sell the item for at least .29 to hit your food cost.

Of course that assumes that there is absolutely no waste when you produce that menu item. It also assumes that you are selling every item you produce. If you have been even remotely involved in restaurants you know that it is not a realistic expectation. There is waste. Items do get thrown away. You need to make sure to account for that when you are doing your menu pricing.

When you cost out menu prices use a target food cost lower than your target cost. For instance you could do the calculation based on a 30% cost. This will allow for waste, and you will still hit your overall food cost.

The Art of Costing Out Menu Prices

Of course not every item will get sold for the amount you came up with when you cost out menu prices. If your cup of coffee cost a dime to produce, are you really going to sell it for 35-cents? The art of costing out food prices comes in because you don't have to sell every item at it's target cost. You can adjust prices up or down to make sure you make your profit margins, but are priced in a way that your customers won't mind paying. You have to look at the menu as a whole to see if you are hitting your target food cost. Some items may be priced a little higher, while other are priced a little lower.

It is about giving your customers a perceived value. If they think it is worth what you are charging, they will pay for it. If they don't think it is worth what you are charging, they won't pay. They really don't care about your target food cost.

The point is, make sure you take the time to properly cost out menu prices for your restaurant. You can make adjustments, but at least you know that your prices are realistic and not based on a gut feeling.

Costing Out Menu Prices

Jim Smoot writes the "A New Restaurant blog at http://www.anewrestaurant.com He has been involved in the food service industry for over 30 years, and has spent over 20 years in management and leadership positions. Check out his blog for great tips and techniques designed to help you run your restaurant successfully. Learn to avoid the pitfalls that lead to failure.

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