Restaurant Menu Costing: What You Need to Know and Why
If you’re going to run a successful restaurant business, there are a few management tasks you simply cannot avoid: counting your inventory, tracking your sales, and restaurant menu costing.
Menu costing is particularly essential to protecting your bottom line. In the restaurant industry, your sale prices are your only source of revenue – to stay in business, you need to make sure the cost of your dishes covers all your expenses while still delivering a profit.
There are plenty of formulas and templates you can use to figure this out, but understanding what menu costing is, and why you need to do it, is the very first step to gaining optimal control of your revenue.
And with tools like professional restaurant management software, you don’t have to rely on guesswork to engineer your menu and prices. With the basics in hand, and the right tools for the job, you’ll be confident that you’re setting the right prices to run a successful business.
1) Start With Costing Your Menu Items
You can’t skip this time-consuming step, but it doesn’t have to be hard.
Food costing starts with figuring out the exact cost of every item on your menu – including drinks, appetizers, mains and desserts.
This is not the time for estimates. You have to drill down to the very cent, ounce and teaspoon to make this work effectively. And don’t forget to include the costs of labour and operations into these calculations. The time and resources that go into prepping each dish are also costs your menu prices must cover.
If you’re using restaurant software like Optimum Control, you can accomplish a lot of this work with the click of a button, or tap on your screen, using our easy, built-in food costing templates and apps.
Once you’ve added up the cost of raw ingredients, labour, supplies, even washing the dishes afterwards, you’ll have an accurate picture of the costs that affect your bottom line for each menu item – and the amount you need to charge for that item just to break even.
Next, let’s figure out if any of these costs can be reduced or eliminated.
2) Tackle Food Costing Basics: Yield, Portion and Waste
Understanding yield in your kitchen is key to cost management: a head of lettuce or cauliflower yields more waste and less usable product after prep than carrots or tomatoes. Look at your menu items and see if you have enough dishes that use up most or all of your raw ingredients so you maximize what you pay for. And make sure your recipes clearly state the expected yield from each ingredient to make it easy for your staff to stay on track.
Tackling yield also helps reduce food waste from cutting into your profits. As you figure out how to get the most out of each ingredient, such as using leftover bones as stock, and leftover vegetables for a chili, you and your staff will be more creative while putting money back into your bottom line. You can also ensure that every item on your menu is purchased frequently, and that you build a menu with common ingredients, so you get the most out of every food and beverage item without waste.
At the same time, train your staff so that everyone is on the same page with portions: your costs will be consistent and consistently lower if everyone follows the exact recipe with the exact same measurements.
Likewise, the portions you serve to your customers should be consistent, and right in the middle of being not too big that there’s always some left on the plates, or too small that your customers leave unsatisfied. Watching what you throw away is equally as important as what goes into your dishes.
3) Decide on Food Cost Percentage vs. Gross Profit Margin
You can approach this important step from two ways. The first is to calculate your food cost percentage: the cost of a menu item divided by the price you charge (or want to charge).
The resulting percentage is your food cost percentage, and typically restaurants aim for a percentage between 25 and 35 per cent to achieve a reasonable profit. Using this tool, you can keep a quick and close eye on your prices, and get a fair idea of how your costs and profit balance out.
But there’s another way to do this: gross profit margin.
Your gross profit is the money you have left over once every single bill is paid, and you can decide how much you want that to be in order to set your menu prices.
To help you decide at first, you can use a common rule of thumb in the restaurant industry: 30-30-20. Each recipe cost is divided into 30% for ingredients, 30% in labour and 20% on occupancy costs like heat, water and light. The remaining 20 percent is your profit.
Once you decide on the minimum profit margin or cost percentage you want for each dish, you’re ready to add that onto your food costs and set your prices.
4) Use Menu Engineering to Strike a Balance Between You and Your Customers
Even with your costs and profits covered, it can be hard to decide on your final menu price – you need to make money to keep your doors open, but charging too much can drive customers away.
Good menu engineering helps you with both. You can start by using menu costing software like Optimum Control – built in reports can tell you what your biggest sellers and least popular items are so you can adjust your menu accordingly.
The same applies to handling fluctuations in cost to your raw ingredients: Optimum Control software can connect you directly with your suppliers, so you’ll always know when prices increase to change your menu, orders or recipes accordingly.
Other strategies like making sure your menu offers a balance of high and lower-priced dishes is important, as is recouping costs with nominal charges for menu substitutions, drink refills and fresh bread on the table.
Lastly, as you take steps to set the prices on your menu to cover your overhead costs, you still need to attract customers. Your prices should adequately reflect the market you are in and the value your customers expect, without impacting your bottom line.
5) Get Professional Restaurant Industry Software
The right restaurant food costing software will easily and instantly help you find the sweet spot in menu prices where you make profits and still drive sales.
Optimum Control restaurant inventory management software makes food costing and menu engineering an easy and accurate part of your day-to-day hospitality business operations. All our products come with dozens of report options to help you analyze your costs, sales and profits – plus pinpoint where you’re losing money and your opportunities to save more.
Best of all, our all-in-one restaurant and bar management apps and software products combine the simplicity of managing food and recipe costs in a spreadsheet with the genius of a fully integrated and mobile solution.
Take control of your menu costs and prices. Get Optimum Control today.