Pricing your Menu

Pricing the menu

  The image shows the customer experience out weighing the cost of of what they pay for the food, which must be the goal of every restaurateur.Good service, quality food, a clean environment - these are all goals every owner strives to achieve. They are alsothe means to maintain a viable profit margin. Today when growing costs and heavy overheads are eroding thatmargin, you should constantly look for new ways to build profits.Pricing must be right to meet the competition, satisfy the patrons and afford a reasonable profit. That, after all, is themain reason for remaining in business.

Mark up

Mark up is the percentage you add to your raw food cost to determine the selling price.At a minimum you should allow for at least a 200 percent to 300 percent mark-up to maintain profitability. Thismeans at 200 percent that if your food cost is $2.00, your mark-up is $4.00 and your sale price is $6.00. At 300percent if your food cost is $2.00, your mark-up is $6.00 and your sale price is $8.00.Some items, such as coffee allow for much higher mark-ups.Ideally before you price up your menu you will know what all your fixed costs are, like rent, wages, food costs, insurances etc. Knowing these as well as home many people you will be feeding per week will allow you to calculate the amount of mark up required to keep your business profitable.

Gross profit

Gross profit is the dollar value of your mark up divided by the selling price, expressed as a percentage.Do not get confused between mark-up and gross profit. Look at the following comparison table. If it helps you, you can download a Mark Up—Gross Profit Calculator from our website at

Increasing your profitability

Your menu pricing has a direct relationship with your profitability. It is your duty to continually explore avenues toincrease this profitability.The main ways are: • control costs • increase prices • value add or up sellSee the following table Value adding or up selling is something we all familiar with, but fail to take advantage of in our own businesses.Remember where you heard, “Would you like fries with that”. It is one of the most quoted value-add linesin business.In your business this could be as simple as every time you sell a cup of coffee ask “would you like one of ourdelicious cookies with that?” or every time you sell a food item try to sell a drink as well. It may not happen everytime, but it will happen often enough to impact positively on your bottom line.This skill is one of the most important things that you can teach your staff. By continually value adding, yourstaff can justify their own position in your business.As you can see, controlling costs and increasing prices both have a similar impact on your profitability, thoughobviously a combination of both is ideal.

How can I increase my prices above my competitors?

The key is to give your customer a better experience for their money. Make their experience unique by giving betterservice, or by offering a coffee mug instead of a cup at an increased price, or even keeping a special mug on thepremises for regular patrons with their name on it at your cost. Think about it, people are not afraid of spendingextra money as long as it is worthwhile.So, price to the customer is really a mix of value and cost. The price a customer is prepared to pay for a productdepends on the cost of the product and the value they place on that product.In highly competitive locations, the margin of profit is often narrow and can be wiped out by high food costs, highwages, high rents, high waste in food or a low volume of business. Keeping the right price for the customer andallowing a satisfactory profit for the owner means exercising extreme economy in places where economy reallycounts.Food and labour costs must be kept at the lowest point possible, compatible with good quality and service. Foodwastage must not exist. Volume must be increased through alert merchandising and turnover increased by valueadding to the sale.

Food costing

Standard portions. In order to obtain control over food costs, it is essential that food portions be uniform, everytime. Thismakes it possible to compute unit costs and prices based on standard sized portions. It also insures that eachcustomer is treated alike as far as food portions are concerned. Carelessness in food portioning can affect the foodcost percentage adversely.I recently met an executive chef at a Sydney club who gets his staff to pre-portion everything. Even pizza toppings! They vacuum seal portion controlled amounts of say the meat lovers pizza and then when one of these is ordered they cut open the bag and sprinkle the contents onto the pizza base.They combine the use of a blast chiller and vacuum sealing to control their costs, extend the life of the food and through this process they have almost eliminated food wastage! Wow, who wouldn't want that!**** Previous blog posts in this series are: Menu Planning Serving more Customers How good is your customer service Finding the Best Location for your Cafe Impressing your Bank or Finance Provider Hospitality Industry Business Plans