The Art and Science of Menu Pricing?
Is menu pricing an art or a science? Well, it’s actually a little bit of both. That’s why knowing and applying the appropriate balance of art and science to pricing a menu item can make all the difference in creating a profitable operation.
Pricing a menu item by simply pulling a dollar figure out of thin air will likely send a restaurant business down the garbage disposal. This common pricing faux-pas is perfectly represented on the show ‘Restaurant Impossible’ on the Food Network, where Chef Robert Irvine comes to the rescue for failing restaurants with only $10,000 and 48 hours. Operators are repeatedly flagged for losing money each month because their menu prices were too low, too inconsistent, or both. Chef Irvine is truly amazing the way he can turn these restaurants completely around, but the big question that stands is whether or not the restaurant can implement and adopt these new solutions in the long run; One of them being able to properly menu price.
The Formula for SuccessA common food cost target (cost of goods or menu item) percentage is 25 - 33% of the actual menu price. That means that roughly $.25 - $.30 of every dollar charged on the menu is actual food cost; the remaining 67 - 75% will cover labor, fixed costs such as rent and insurance, and the gross profit. Keep in mind, soft drinks, coffee and alcoholic beverages should command a lower food cost target, which usually makes beverages twice as profitable as an entrée. A formula for an operator to use if they know their cost of ingredients for a plate and their desired food cost % is [cost / desired food cost % = menu sale price.] So, let's say an operator wants to run a 25% food cost percentage and their food cost of their veal parmesan is $3.00. Apply the formula: $3.00 / .25 = $12.00. Using this formula, the item should profitably be priced at 12.00...or $11.99, which is perceived as a lower price to the customer... That's where the "art" comes in. The remaining $9.00 will cover fixed costs, labor, and profit. It is very important for each item on a menu to be documented on a spread sheet and analyzed periodically. This will help an operator keep track of pricing and adjust it as necessary due to the ever-changing fluctuations in food ingredient costs. By educating yourself and your operators on proper menu pricing will surely prevent any establishment from needing Chef Irvine's services in the future!
Enhancing the Dining Experience Can Increase Sales!All restaurant operators are looking for ways to make more money. Sometimes the implementation of a simple ideas or concept can make a world of difference to increase an operator's profit margin. We live in a world of fashion and esthetics where subtle changes in visual appearance can make a large impact, even though most of the time people won't necessarily notice or be able to pinpoint what is different. This philosophy is no different within a restaurant. Many times we will dine at an establishment and subconsciously notice that a menu cover is worn out or a paper placemat is curling because it is so thin. The check holder is ripped or the actual menu has food stains. This takes away from the overall dining experience. Even though some patrons may put up with this if the food is good, the prices are excellent, or the service is superb, that is typically not the case. In most cases, the patron will not return! What if an operator took a different approach and upgraded their menu covers to a heavier grade material? Or what if they transitioned from paper placemats to a Risch woven placemat? Could that same operator increase their menu prices by 10% and not receive a backlash from their customer base? We at Risch say yes to all of the above! These changes can make a more positive impression on the consumer experience, and possibly ensure their patron will return again and again. Let's take that example and apply some simple math: Restaurant ‘X' averages 4,000 dinner customers per month. Their average check is $20 per person. Since they recently upgraded their menu covers, placemats, and check holders, they will be able to increase their average check by 10% through a menu price increase. This simple aesthetic upgrade translates into an additional $96,000 per year in gross revenue! Restaurateurs must remember to always look at their restaurant from their customers' perspectives. All consumers develop feelings and opinions about restaurants, and many are very observant. It is important to make every dining experience as flawless and memorable as possible. The more an operator can improve and enhance their establishment, the easier it will be for the consumer to part with their money, and more importantly, ensure they will come back.
Risch has the products to help an operator do just that. That's why we say, "Make an impression. Make it Risch."