A combination of careful maths, market analysis and presentation.
One needs to get this right, as getting it wrong is likely to cut short your restaurant career.
The simplest one is probably the maths.
Take the cost of the food that you serve. Dish by dish, calculate the individual raw costs of every ingredient — not forgetting waste — and add them up. Don't forget to allow a wee bit for minutia, like seasoning.
For example, you have Kedgeree on your menu… but what goes into it? Smoked Haddock, Eggs, Rice, Onions, Curry Powder, Butter and Parsley.
OK, so smoked haddock is generally supplied filleted. But does it come with the skin on or off? If you buy it skin on, you are being charged by weight, including the skin. Do you serve the smoked haddock with the skin on? Probably not. There's nothing more than a few grams of skin in a serving for two… but if you are plating 75 servings of Kedgeree every few days, those couple of grams add up…to a lot.
So — you should calculate your costs based on the uncooked and unprocessed food costs (because most food loses weight in the cooking process.)
You should then allocate a cost to the dish based not on the dish's weight but on the proportion of the dish you serve.
If out of your initial batch, you get 20 servings, when you use weight to calculate, you will not be making the correct assessment.
As I said earlier: food tends to lose weight - generally through water evaporation during cooking - You basically pay for that water when you buy it.
OK, so you have a food cost. Good. Now what?
The old-fashioned rule of thumb is to multiply it by 3. This system - as a general rule - will allow you to cover your overheads. For example, your rent, labour, equipment costs, heat, light, and other bills to make a little more room for that beautiful word PROFIT!
So: Kedgeree Food cost per serving is £3.24 - times by 3, and you get £9.72… sounds good. If you sell that for £10, great!
STOP!
No!
Don't do it!
TAX!
Yes, you nearly forgot - tax. In most parts of the world, food sold in a restaurant is subject to the state's taxes. In many countries - the tax must be included in the price you advertise your dish. I think only the US and Canada do not have the tax built into their menu prices… but certainly in Europe and the UK, we are required by law to include any sales tax (VAT) in our prices.
So, since I am writing in the UK - I'll do it as it is here.
If your food cost is £3.24 multiplied by 3, you get £9.72.
Now you must add the VAT - but how much? Well, at the time of writing — April 2022 — VAT on restaurant food has just returned to 20%. You'd need to add a further 20% onto your selling price to ensure you cover the VAT.
The simple way to do that is to multiply the money you want to sell for - in this case, £9.72 by 1.2 - this will add the 20% and give you your total of £11.66.
OK.
Step 1 complete.
You have done the maths correctly. KER-ching! You are doing business - yay!
Step 2 of pricing your menu - the market or competition analysis.
What are the restaurants around you selling their Kedgeree for in your neck of the woods?
I guess that there are two possible situations here:
- Nobody else is selling Kedgeree - good thing / bad thing
- Lots of people are selling Kedgeree - bad thing / good thing.
Let's deal with 1. So, you can't find Kedgeree on a menu in a restaurant within a 10-mile radius of your operation. That's good - because your price cannot be directly compared to another. You will not be judged as expensive or cheap by the cost of your Kedgeree. However — it's bad because nobody else is already selling it, meaning you have no idea what people will pay for a plate of Kedgeree!
Given this situation, how does one price the Kedgeree?
You look at the restaurants you want to compete with…the ones you feel have customers in common. You look at their menus and find a dish that you consider to be similar. A Squid Risotto? A Paella? Are they mains or starters? Is YOUR Kedgeree a main or a starter?
Maybe you don't want to be the same as the competition, perhaps you want to be the cheaper alternative, or do you want to be more upmarket?
Take your process of £11.66 and tweak it according to the market. Can you get more?
If you can't get more and need to charge less, perhaps you need to review your portion size. If you can get your food cost down, you can get your sales price down to something more in line with the market.
Now, let's look at 2.
If lots of people are selling Kedgeree: Bad thing? - lots of competition — your Kedgeree better be good!
Good thing - there are clearly lots of people eating Kedgeree in your neck of the woods. So a lot of people are potential customers.
By tweaking your price here, you are allowing a simple price positioning. Do you want to be seen as better value in the busy marketplace? Or do you want to be the more discerning of the operations in the neighbourhood?
So, where does your price of £11.66 sit in the market?
Are the restaurants you aspire to be, selling their Kedgeree for more or less?
Does yours taste better?
Perhaps selling it at the same price will prompt people to try it, and once they taste yours - that's obviously so much better- you'll be booked weeks in advance.
Perhaps. Is yours tasty but less fussy?
That is your price in the market.
The last option is often overlooked but is a crucial part of pricing.
The presentation of the price. Or, in other words, how you advertise it to the customer on your menu.
This is relatively easy, too, as there are some rules you can follow that are not subject to competition or market forces. Most of this is human psychology.
Presumption here: As a restauranteur, you want to sell food that makes people happy and makes you happy. Win-Win.
Your kitchen works hard and efficiently.
Your customers get good food on time.
You get paid a fair price for the food and the service delivered in your restaurant.
You want to sell dishes that the kitchen is happy to churn out, that the waiting staff have confidence in and that the customers are happy to eat and pay for.
You have a choice on your menu - or at least most do - and some of those choices will be easier and more profitable to make and serve. Presenting the prices with some thought will allow you to steer choices in a direction that suits you rather than working against you.
- If you are not setting out to compete on price (and I humbly suggest that if you are reading this and are not yet prepared to go into battle on price), DON'T SHOUT ABOUT THE PRICE!
What do I mean by this? Well, bear in mind that when most people enter your restaurant, they are willing to pay for your food. They have already decided to spend some money. Most people do not enter a restaurant with a fixed budget in mind.
Some will, but most do not.
There is something in us humans that will allow us to be guided by price if it is the first thing we see. Try to sell your dishes based on what it is, rather than purely on the price.
You are in the restaurant business because you want people to eat your food the way you or your kitchen have cooked it, yes? So hear me out…
- When writing your menu, do not put the price in red ( or any colour that is not the same as the description. ) This just draws attention to the price first.
- When presenting the price, best not to do it……...........................................................…….....like this. It just draws the eye to the price before a description is read.
- Don't have the price butted up beside the title of the dish. Move it to the end of the description. It is still visible and legible, but not in your face!
- A straightforward one to bear in mind is the currency sign. The £, €, ¥, $ or whatever your currency is. I don't believe there is a legal requirement anywhere to use the currency character in a menu. Often, there's an unwritten rule about using currency signs but not legally required - So why lose it? Well, a team at Cornell University studied that by removing the dollar sign, sales went up. And the reason for this is that the dollar sign just reminds people that they are spending money.
- Don't list items on your menu based on the price. If you're listing from cheapest to most expensive - or vice versa - it does you no favours and will encourage "price buying".
- There is lots of debate about whether decimal places are good or bad. I guess it really depends on your market. If price is a key driver, then the decimals matter. If it's not just about the price, just stick to whole numbers?
I hope this has helped.
Cost your menu - an alarming number of restaurants wing it. Best not.
Don't forget the tax!
Think about your target market. How do you want to be compared to the rest?
Last but by no means least, give your menu the best chance to sell stuff based on what you want to sell and not the price.
Laters…!