The simplest rule for pricing menu items?
Food costs x 3 = retail price on menu
Why the multiple of 3? Food + Labor + Overhead
The key is to have a good handle on your food costs. Surprisingly, many owners, managers and chefs have no idea what their food costs are. A simple Excel spreadsheet can be used to track the cost of food with each delivery. It will take less than 30 minutes a week to enter this and derive the data you need.
Some ingredient prices change drastically from week to week. Seasonal items can offer both opportunities and profit drains. However, you won’t be triggered to adjust your menu or your prices if you don’t track food costs.
To really take it to the next level, look into Restaurant-Orders.com. This software application automates your inventory and ordering, but it goes even further. Vendors bid for your business so you get the best available prices each week. The software subscription guarantees you’ll save twice the monthly cost or it’s free.
Restaurants are a business. At the end of the day, it’s about the money you make. Operate your restaurant like a business. Change prices and ingredients regularly to increase your profit margins and minimize losses. All businesses have a few “loss leaders.” These are menu items you need to have to meet client demand but can’t price them profitably due to market dynamics. But these loss leaders must lead to profitable business by bringing in customers who order and pay for your profitable menu items. If your loss leaders are purchased by people using Groupon or ordering your early-bird specials, you need to rethink your pricing structure.
Another thing to look at is the cost of “free” items given to customers (salads, bread, chips and pricey condiments.) You don’t want to nickel and dime your customers, but you don’t want to offer free items that cost real money that end up in the garbage. Consider offering them upon request only, or charging a minimal fee so those who don’t plan to consume it won’t order it.
Running a restaurant is a difficult business. It can be profitable and rewarding if you keep your eye on the bottom line.