While you do what you do for the love of food, you’re still in business to make a profit. Key to making money is understanding the true cost of the dishes you create and ensure that you cover your costs. So when you price your menu, there are three things you need to take into account.
The direct cost of each dish
Simply put this is the cost of all the ingredients that go into each dish. You can create a recipe sheet that lists out each ingredient, the cost to purchase these in bulk and how many serves you get from each order to work out a cost per portion for each ingredient. To do this effectively it’s critical to know exactly how much of each ingredient goes into each portion and stick to that when serving. If you’re even just a little generous in your serves it can put your entire pricing structure out.
All your overheads
While it’s relatively simple to identify how much of each ingredient goes into a dish, working out how your overheads should be calculated across each dish is a bit more difficult. Calculating and allocating your overheads correctly can be the difference between a booming business or going bust.
Your overheads should include everything from the cost of your staff to waste disposal. To work out how much you need to incorporate into the cost of each dish, first list each expense and calculate how much this costs for each day your restaurant is open. Once have a daily rate you can then divide this amount by the average number of covers you serve each day. That will give you how much of your overheads each dish needs to cover in its price.
What profit you want to make
Your business needs to be viable so it’s essential to factor in how much profit you want to make. If it’s too high you may price yourself out of the market but if your profit is too low it may be difficult to maintain and grow your business.
This can be calculated either as a percentage of your total price per dish or a flat dollar amount per dish. You may find that it’s necessary to adjust this for some dishes, particularly if they’re more (or less) labour-intensive to produce. It’s also a good idea to price in a contingency to cover any unexpected costs that may arise.
Putting it altogether
Once you have the cost for each serve you then add them together to work out your food percentage. This is the proportion of the cost of your dish that covers the direct costs. This will help you calculate how your pricing needs to change when the cost of your ingredients increases. If the price of an ingredient increases, you can calculate the new direct cost of your recipe and work out what the new price needs to be to continue to cover indirect costs and profit by ensuring your food percentage remains the same.
Our tips to reduce your costs
- Consider the cost savings from ordering in bulk rather than just in time
- Trim food waste by reducing food inventory – buy only what you need
- Keep a daily inventory of key food items
- Plan to repurpose usable trimmings and waste products elsewhere on the menu as garnishes or in stocks and sauces
- Educate staff about the need to reduce waste and measure ingredients carefully
- Replace rubbish bins with transparent boxes for each staff member to allow waste to be inspected
- Consolidate food purchases with a preferred vendor arrangement
- Monitor your food, beverage and labour costs weekly – what gets measured gets managed