By Peter Farrell
07/03/2022
Food Consultant Tips for Costing Your Menu Based on Gross Profit Margins
If you have read our food consultant blog on “how to do food costings for your menu”, you’ll already have a basic knowledge about what you need to make sure your menu isn’t pricing you out of business. While that blog focused on some of the general tips about food costing, here’s where we are going to get into the detail behind it.
Remember that your gross profit margins are a controllable cost, and it is one of the most critical elements of running a successful restaurant.
What are gross profit margins?
A gross profit margin is basically the difference between the price of the dish and the cost of ingredients to make that dish.
Before you even think about determining your gross profit margins on your menu items, you first need to have a good understanding of your business model and brand. This includes where you sit in the market (such as the type of food you’re going to be selling) and who your consumer is. Once you know who is going to be buying your product, you can then move onto menu engineering and developing the type of dishes that fit into that concept.
You’ll likely be spending some time developing dishes that taste great before you move onto your costing exercises. This will involve taking every dish on your menu and working out the cost of every ingredient in that dish. Keep in mind that Food Motion can help you to do this by providing you with the right tools and spreadsheets to make this task a much simpler one.
Once you work out the cost of every ingredient for a specific dish, you’ll then calculate your gross profit and determine whether that matches your target market. Remember, you can always tweak the pricing here.
Not all items will have the same gross profit margin but it’s important that you don’t go below 70%. Of course, there are exceptions to this, but generally, you’ll want to aim for a gross profit margin of between 75% and 80% (with the latter being the holy grail of gross profit margins).
How to calculate gross profit margins like a food consultant
Before using this formula to price your menu, you need to know what the COGS (cost of goods sold) of every item is. If the raw food cost of a burger on your menu is £5 (that’s £5 for the bread, meat, veggies and sauces that all go into the menu item), then you add that into the following equation:
Net cost price / cost % = net selling price x 1.2
This should give you the gross selling price of the menu item.
Calculate and repeat
Now that you have the hang of it, you will need to do that with every menu item. If you are not really a numbers type of person, that’s where a food consultant can help you out. You can also make use of software designed to help restaurant owners with this type of thing. Analytical software can go a long way in helping you think about new pricing strategies when you’re opening up a new venue and / or when you’re looking to re-evaluate your pricing. Don’t forget that this isn’t something you do and then forget about – you’ll need to make sure that you keep up with the costs to ensure your pricing is accurate or you could be pricing yourself out of business. Many restaurants do this on a weekly basis, but you need to be calculating this on a monthly basis, at least.
A perfect balance
As any food consultant worth their salt will tell you, pricing a menu is not only about the numbers. There’s a certain flow and balance to getting it right – and some tricks of the trade that will ensure your customers see value in your menu. Having a well-priced menu is important, of course, because most people look for value for their money, but having a couple of high-priced items on that sort of menu will bring in those folk who are looking to spend a little more on something extra special.
Of course, this is only one of many aspects of menu pricing – if you’re interested in learning more about how a food consultant goes about pricing an appealing and accessible menu for specific target markets, keep your eyes on this blog. Get in touch today!