Restaurants often operate on very small margins. If you don’t price food and beverages correctly, you’ll lose money. Many restaurant owners struggle with restaurant pricing.
Fortunately, there are some simple formulas that can help you calculate food costs to price menu items to be profitable.
Know your food costs
The Costs of Goods Sold (COGS) tells you what the food cost you. You’ll need to be organized with inventory and count it at the beginning of the week. The formula is: COGS = Your beginning inventory + additional inventory delivered during the week – ending inventory. The figure you end with is your actual food costs for the week.
Make your prices higher than your costs
For simplicity sake, lets say your COGS for the week is $1,000. You need to make sure your customers are paying more than that. Typically, in food service establishments, food cost should be about 20 to 40 percent of the menu price. Calculate the price of ingredients for menu item. Let’s say it’s $2.00 to make a plate of food.
Use this formula to calculate the menu price:
COGS/ food cost percentage = menu price
$2.00/ 20 percent = $10.00
$2.00/ 40 percent = $5.00
Your plate of food probably needs to sell between $5.00 and $10.00. Keep in mind that food costs do not include labor costs or operational costs.
Control your profits
Restaurant pricing is just one part of the puzzle. You should have a consistent procedure to maintain food costs across the board. Just giving one extra slice of bacon on a sandwich could be quite expensive. Consider the cost of extras when you’re pricing, such as condiments or sides. Your staff should maintain portion size to keep profits within your margins.
Contact Black Wolf Capital Group for lending options for your restaurant.