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How to Price Menu Items

One of the most effective ways to manage risks in the restaurant industry is through food costing. If you’re a new food business owner, below is a guide on pricing menu items for your restaurant.

1.Breakdown each dish on the menu

First, you should list all the ingredients of the dishes on your menu. This includes the main components and minor additions such as garnish, cooking oil, water and etc. Don’t forget to include the amount per ingredient that goes into each dish. You will want to be as thorough as possible during this stage, or you’ll throw off the numbers later on when the heavy computing starts

2.Calculate yield and cost

Next, calculate for the yield of each ingredient against the amount specified in the dish. For example, if you have an apple that costs 50 cents, and each slice is 10 cents (assuming you cut the apple in five equal parts); then a dish that uses two apple slices will cost 20 cents. In this step, be sure to add the purchasing fees (delivery charges, return fees and etc.) with each yield computation.

3.Include your overhead costs

Now you have to factor in the nonfood costs. These include labor, rent, taxes, electricity and etc. What you are after is the overhead costs per person. Once you determine the overhead expenses, divide it by the number of customers you expect to have daily. For example, if it costs $1,200 to keep your restaurant in business for an entire day and you cater to 200 diners daily, the overhead cost per customer is $6.

4.Determine your final price

Using your overhead costs as a guide, determine your final price. To get this figure, divide the total cost of the dish by the sales or mark up percentage. During this step, you’ll have to establish a mark up percentage that you’re comfortable with.

After pumping out some prices, you might come across some awkward figures. For example, salad that cost $5.17 or a slice of pecan pie that is priced at $5.83. Most restaurants round up to the nearest 10 or 25 cents, depending on the pricing standard for the menu. Rounding down is not common practice.

5.Double check the numbers and get a second opinion

Be sure to run the numbers a couple of times to make sure they are correct. Once you are confident with the prices, it is time to get realistic. Are your customers willing to pay for the new items in your menu? Is there room for you to make a higher profit?

You may need to get a second opinion from people in the area through feedback or surveys. A general average of what your demographic is willing to pay for (when it comes to meals) should help you compete with other food establishments.

This step is critical because you may have your food costing down properly, but if customers are not willing to pay for the dishes, your business will not survive.

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