October 07 2014 – Robert Fiumara
Informational sources of all sorts will tell restaurant management that menu pricing is somewhat of a vague and complicated process. That you can figure out how much you are paying for food supplies and simply charge three times as much, and that they key to undermining your competition is to simply lower your prices. Another common strategy is to simply do a give and take and apply some simple guess-work around your margins and hope that your customers will react positively.
These options incur a whole lot of risk, despite how common they are. Your menu is one of the key reasons your customers will come through the door, and they want to payty for the quality of work and food they feel they received. Without fail, your prices will influence, almost more than any other fact, how your restaurant is perceived. They also more than almost any factor will determine how profitable your business is, so it’s extra important to spend a solid amount of time and effort on determining your prices.
There’s no exact formula when it comes to pricing, but there are certainly some things you ought to consider:
- Direct Costs: The costs of the ingredients themselves. The purchasing, portion sizes, spilling, overcooking, and any other thing that may result directly in food use or waste.
- Indirect costs: The costs that are not included in the actual ingredients that make up a meal but add perceived value. From garnish and presentation to utility items, these can vary greatly.
- Prep and labor: The labor involved in preparation of the food you serve. Meals that require greater investment, labor, or artistry in their preparation merit a higher menu price than something that can be heated and held or simply warmed up.
- Overhead: Things from décor and amenities to restaurant presentation. These add a value to your restaurant that is not readily applicable, but easily apparent.
- The volatile nature of food costs: Depending on crop availability and other environmental factors, the nature of your menu and the ingredients involved will have to change as they are more or less available. Your prices should reflect that.
- Competitors: Simply put, what is it that your competitors charge for a similar item?
- Type of service: From fast food to fine dining, there are certain expectations that need to be met with your guests. Think about what you would be willing to pay for the type of service you are providing.
- Boundaries: Lastly, think about what your pricing boundaries are and adjust your menu accordingly. Ultimately, even if the value of the burrito you serve is $16, do you think that your customer base will support that pricing? If not, you need to tailor your menu.