Setting the best price means often several factors in the restaurant industry. Setting higher prices can mean more profits, but less customers. Its best to find that sweet spot, where you can still charge the right margins, and still attract the right customers. But just how do you determine the right price for restaurant menu items?
Setting Menu Prices
1. Food Costing – Your food cost should be around 30-35%. If you pay $1.00 in costs for something than the menu price needs to be at least $3.34. Keep in mind
2. Menu Pricing Formula – Cost of your product/.35=menu price. This is a typical formula restaurants use. CostBrain software will actually calculate this out for you.
Another pricing formula restaurants use: Raw Food Cost of Item ÷ Desired Food Cost Percentage = Price
3. Competition Pricing Strategy – Assessing the competition is important as well to decide exactly what prices you should charge. There are several strategies to look at when pricing according to the competition.
a) Price the same as competitors
b) Make your prices slightly lower than competition (to attract bargain hunters)
c) Price your product higher to portray value
What To Consider Before Setting Your Menu Prices
Direct Costs: These are the most transparent costs involved in the food. Consider food, portion size, and even food waste which can be caused from incorrect portion sizes, spillage, expiration and even simply messing up the cooking process (overcooking, etc).
Indirect costs: These costs are a little harder to see in how they exactly effect the cost of creating a menu item. These are the parts of your restaurant that add value. This could be restaurant furniture, plates, etc all that are part of the presentation of your restaurant.
Labor: Labor is a major part of any dish. Did you consider how long it takes to make the dish? Does it require a special chef who gets paid more just to make certain parts of the recipe? Additional labor costs are definitely something to consider when preparing a menu item.
Overhead: This can be a number of things. This can include electricity, food prep appliances, cups, bowls, and anything that the restaurant requires to operate.