Properly pricing your menu, always as much of an art as a science, is one of the most mission-critical responsibilities that you, as an owner/operator, ever perform. The reality is that many different factors come into play: some emotional, some mathematical, some within your control, some not. This makes menu pricing an activity that deserves more than just your cursory attention and efforts. Add to this complexity the fact that getting it right is as important a factor in determining your success or failure as the quality of your food or service, and we have a topic that behooves all of us to investigate thoroughly. With our costs as operators rising, and revenues not exactly setting any records for most of us, knowing how to price a menu for maximum sales and profit is more important than ever.
Many factors come into play when determining what the best price for any particular item on your menu should be. Some are obvious, some less so. To strike the perfect balance between what you need to charge to make a good profit, and what your customers are willing to pay, you need to develop a big-picture concept of what’s going on in your kitchen, dining room, neighborhood and beyond. To begin with, there’s no excuse for not having an easy-to-use system in place to determine what you are paying for the raw food on each plate that leaves your kitchen. Then your cost for the labor that went into those plates needs to be considered. Controlling these two basic costs is one of the primary and most important jobs of any restaurateur. Your particular overhead costs are just as important a part of the equation: rent, insurance, marketing, maintenance, salaries, utilities and more all have to be covered (and then some, obviously, to make a profit) by what you charge for the food and beverages you sell. Then, of course, there are the ever-popular and critical questions to be answered: what will the market bear? And why? Both of these questions need to be answered accurately before you can formulate a successful strategy of menu pricing that will appeal to both your customers and to you, as you examine your Profit & Loss statement. Let’s look at the various factors that go into figuring out just what to charge for the services you provide.
One of the first things most people will do when faced with the task of pricing out a menu is to simply look at what some of the nearest competition, both geographically and conceptually, are charging. While not in any way a waste of time or effort, this should be considered no more than an initial step in coming up with a basic range of options for your prices. No two establishments are created equal, and it’s impossible to understand every factor that goes into another operator’s situation. Maybe they own their building outright and therefore pay no rent. Perhaps they have a trust fund that allows them to work more for “identity” than “income.” The youthful staff? What if they’re the owner’s hapless relations who work for peanuts? Sure, check out what’s happening around you, but base your pricing decisions on calculations you have done yourself for your own business. If the person next door is succeeding, you can bet that he has.
The most basic thing you need to know before deciding on a price for an item on your menu is just how much you are paying for the food that the item contains. This starts with having standardized recipes and plating instructions that are accurate, and are followed. First, differentiate between recipes and plating instructions, both of which will be followed by the cooks. By plating instructions, I mean a document that includes everything that is included in a particular menu item. If your snapper entrée consists of 6 ounces of seared snapper, 2 ounces of lemon beurre blanc, 3 ounces of grilled asparagus, 4 ounces of rice pilaf and a sprig of Italian parsley, then those items would constitute the items on your plating instructions for that dish, along with other instructions or maybe a diagram or photo. Separately, you would also need a standardized recipe for each of those items (with the probable exception of the parsley sprig – sometimes it’s possible to try too hard.)
Each of these two documents, the recipes and plating instructions, must also have a version that includes the cost of each item and the total cost for each recipe or plate, to be used by whoever is in charge of the food costs and pricing. If you are lucky enough to have someone on your staff who is handy with spreadsheets, they can write templates so that your chef can easily write the recipes for the cooks, figure out the cost of each portion of each recipe on each plate, change the quantity of each recipe with one keystroke, compute the cost of each plate and even automatically tie the costs of the raw ingredients into the current inventory. Even if you’re without your own spreadsheet geek, it might be worth paying for outside help with this corner of technology. It really does make tracking your costs easy and automatic enough that it will actually get done on a regular basis.
Of course, all the technology in the world won’t be a useful tool if care is not taken at every step of the way – much like with everything else in a restaurant. First, real thought must be given when writing the recipes. If the proportions are off, the cooks (hopefully) won’t use them. If the ingredients aren’t specific enough (“oil” as opposed to “extra virgin olive oil”), the quality of the food and accuracy of costs will both suffer. The quantities indicated on each plating instruction must also be representative of what the plate should look like, and what it actually looks like. Even if the instructions are accurate, the staff should be supervised to see that they are following them. If your plating instruction calls for 6 ounces of snapper, but the person who butchers your fish cuts 8-ounce portions, you are not getting accurate information on which to base your decisions. Similarly, if the plating instructions specify 3 ounces of asparagus and your line cooks are putting 5 ounces on each plate, your costs will again be skewed.
So now that you know what each plate of food should cost you, what do you do with the information? For one thing, if you determine that a plate that, for no apparent reason, you have decided to sell for $6.75 costs you $8.10 to produce, you’ll know you need to raise its price or take the dish off the menu. You will never make up the difference in volume.
Next to just pulling a price out of thin air, the simplest, but still not necessarily the smartest, method for extrapolating a menu price from the information you’ve garnered from your costing sheets is called the Factor Method. With this system, you decide on the food cost percent you want (Cost Of Goods Sold – food), then divide that number into 100 to get your factor, and then multiply your food cost for a particular dish by that factor. Here’s an example. Let’s say you decide you want a food cost of 34%, an often reasonable industry standard. Divide 100 by 34 to get your “factor” (100/34 = 2.9). Your factor in this case is 2.9. Now multiply your food cost for a particular dish by that factor to get your menu price. If your food cost on the dish in question is $5.30, then the menu price, to get a 34% food cost, is $15.37 ($5.30 x 2.9 = $15.37).
While this method is certainly convenient, and a lot of operators have used it for years with good success, let’s look at a few reasons it might not be the best system for every situation. First of all, picking a desired food cost percent is arbitrary in regards to the entire operation. It only considers one direct cost, the food, and ignores all of the overhead expenses: rent, taxes, shrinkage, insurance, salaries, advertising, debt service, maintenance, utilities…the list goes on. A target food cost percent that covers all of a restaurant’s expenses in one situation with money left over for profit, may fall short in another situation. Not all overheads are created equal.
Another important factor to consider here is that part of the art of pricing a menu lies in the ability to see just where and how the profits can be made within a particular menu. If one of your desserts only cost you $.38 to produce, why sell it for $1.10 to get a food cost of 34% ($.38 x 2.9 = $1.10), when you know you can sell that particular item for $2.25 at a food cost of 17% ($.38/$2.25 = .17)? It’s also important to keep sight of the fact that, at the end of the day, you’re striving to make profits, not percents. Let’s say you have a lamb entrée on your menu that costs you $8.00 to produce. To get a 34% food cost on that item you’d have to charge $23.20 on the menu ($8.00 x 2.9 = $23.20). Perhaps you just don’t feel like you can get away with that high a price. You do, however, know you could sell a lot of them for $18.00, but hate to have an item on your menu with a 44% food cost ($8.00/$18.00=.44). Don’t forget, even selling that dish for “only” $18.00 will make you $10.00 in (gross) profit. I’d rather make $10 selling the lamb with a 44% food cost than make $1.87 selling the above-mentioned dessert with a 17% food cost.
Don’t consider the costs you have calculated, which are some of your most important tools in determining your prices, as static or fixed in any way. They must always at least be maintained and hopefully improved upon. Unless everyone in your organization is on-board in terms of cost and quality control, all your plans and calculations will come to naught. Never forget that setting a menu price is only half the equation in terms of your margins. What happens in the kitchen is the other half. Starting with the placing of your orders, care and effort must be made. Inventories need to be maintained, and that includes keeping the prices current. If you have a cool system in place that automatically transfers your inventory’s prices to your costing sheets, but the prices are 6 months out of date, you really are not getting the information you need to make intelligent pricing decisions. Without someone doing regular, accurate inventories, and then using those inventories before placing an order, there’s no way that you won’t end up ordering more of some things you don’t need, and not enough of other things that you do. Waste and frustration will ensue.
Since so many of the items in a kitchen are perishable to one degree or another, and even the best vendors will make mistakes, your procedures for receiving and storing are very important to maintaining the food costs you’ve determined. You should have a scale to weigh orders upon delivery, and it should be used, especially on expensive items. Extremely perishable items like seafood should be handled promptly to insure maximum freshness and shelf life. Walk-ins, reach-ins and dry storage should be clean, organized and maintained at the correct temperatures. Be sure that raw foods and mise en place are properly stored, identified, dated and rotated. Any food that gets thrown out because of poor storage techniques instead of ending up in the dining room on a plate throw your established food costs out the window.
The same can be said of excessive waste during the processing of various foods. This is a good time to mention that when costing out menu items, be sure to use the EP (edible portion) cost, rather than the AP (as purchased) cost when appropriate. The price you pay per pound for a particular item when it comes in the back door is the AP price. If no waste occurs from the processing that takes place in your kitchen for that item, like with boneless, skinless chicken breasts, then the AP cost is the same as the EP cost. However, if waste does occur during processing, like with fish you purchase whole and then serve as fillets, then the EP cost is determined by weighing the product again, after the processing has taken place, and dividing the AP cost by the resulting EP weight. Any time and effort spent training the staff that butcher your seafood and meat is well spent. Skilled hands in these positions pay for themselves many times over sooner rather than later. Of course, some trim loss is inevitable, and that’s where creative chefs can help. Beef trimmings can be turned into Bolognese sauce, and expensive yellow pepper tops can make a nice coulis. Make sure that the cooks doing the initial butchering know that their scraps have a home, and to store, label and get them into the right hands.
We’ve already mentioned the importance of accurate portioning. On the butchering stations prior to service, ounce scales should be readily available and used. On the line, the appropriate ladles and spoons should be at hand. Regular monitoring and reinforcement is a must. This is not only important for cost control, but for the sake of the customer’s experience as well. Even a menu price previously considered fair and totally acceptable will seem out of line to someone who got a bigger portion the last time they were in.
So, let’s say things have gone well in that you have a menu with prices and selections that a steady stream of clients seem to be able to live with, that you are consistently able to produce at a reasonable profit. Is now the time to raise prices? How about if you’re not making a reasonable profit?
Before actually raising your prices, it’s a good idea to think of ways to increase your profits in other ways first. Keeping tight control of your costs, as I’ve described above, is a good place to start. A penny saved really is the same as a penny earned, and no customers will be rubbed the wrong way because you have become more efficient in your kitchen. Another thing to consider is using less expensive types of meat and fish, and preparing them in ways your clients will enjoy as much as more expensive options. These items can be used in place of items currently on your menu that you feel you’d have to raise prices on to keep, or in addition to them, offering less expensive choices along with the pricier dishes. For example, a bouillabaisse containing a couple of shrimp, mussels and tilapia might be a good way to get a nice seafood entrée on your menu at a fraction of the price (and cost) of a seared yellowfin dish.
Pairing less expensive ingredients with higher priced items to increase your margin works no matter what the price point of your establishment might be. If you are running a sandwich shop, you can offer a package deal by including a low cost drink and pickle with your sandwiches, allowing you to charge more for lower-cost goods, but still giving your customers a perception of greater value. Similarly, a mixed lamb plate that includes braised shoulder alongside a double chop will accomplish the same thing.
A technique successfully employed by some operators is offering a good, but value-focused wine list. If customers know they can get a bottle or two of their favorite wines for a few dollars less than at your competition, they are more likely to not mind an occasional, judicious rise in some of your food prices. They’re also more likely to buy a bottle instead of just a couple of glasses. A slightly lower margin for that much more volume is probably worth it, even without the leeway it will give to your menu prices. Some forward thinking restaurateurs have begun using iPads for their wine lists, offering guests more information, fun and novelty when they order a bottle.
Seasonal specials, that are actually special, are a great way to add higher-priced options to your menu. No matter what your normal prices are, many customers won’t have a problem paying more for things they really enjoy that they know only come around once a year. It doesn’t hurt if your wait staff reminds your guest what a rare treat they’re being offered. Whether you can come up with enticing specials featuring fresh soft-shell crabs, crawfish, super-fresh corn or white truffles, many people will be happy to pay a premium price for a special treat that won’t be around for long. Even things that are generally available year-round, but only make guest appearances at your restaurant can fit into this scenario. If one of your purveyors offers you prime, dry-aged tenderloin, fresh porcinis or great turbot, think about featuring it as an up-market special.
When you do decide to raise prices on some of your regular items, using a laser jet printer for your menus makes is easier than ever from a practical point of view. At least the days of paying and waiting for a printer to do the job are over. Just make sure that you know you’ve explored every other option in terms of cost control and menu tweaking. Also know that maintaining the quality of every aspect of your food and service will, at least initially after raising prices, be under more scrutiny than usual from your guests. Your seasoning, application of heat, presentation, portion sizes, service and cleanliness will all have to be at least as good as ever. If you use the occasion of raising prices as a reason for an overall re-assessment of your entire operation, you (and your customers) will get an extra bang for the buck.