How to Put In Place a Menu Cost System to Combat Rising Food Costs

Do you know what each item on your menu is costing you? When is the last time you updated your menu cost? If it's been more than three months since the last time you calculated the cost of your menu then there is a good chance you are either losing money or missing an opportunity to make more.

Regardless of what you sell, you need to know your product cost before you set a selling price. The primary reason you need to know what each menu item costs you is that it's the only way you can truly know how much gross profit your menu should make. Over time, rising prices or a change in ingredients can quickly alter your bestseller from being a cash cow to a white elephant you can't afford. Unless you keep up with your current menu cost, you won't know how profitable a menu item is.

As costs increase, profits decrease. Some operators react by applying across-the-board price increases to offset swelling food and beverage costs. While raising prices is an option, customers will only tolerate so much before either deciding on another menu item or, even worse, another restaurant.

Across-the-board price increases are rarely the best solution to increased food costs. Typically, rising costs only affect a certain part of your menu -- or maybe even just a couple of menu items. Knowing which menu items cost you more helps you decide how best to deal with it.

Putting in place a menu cost system provides benefits far greater than simply an aid to price setting. Once employed, the process of keeping it up to date helps you more accurately calculate inventory valuation, compute your ideal cost of sales and engineer your menu for greater profitability. If configured properly, all you need to do to keep it updated is to ensure you have the most recent price of the ingredients you purchase. (See "2 More Reasons to Keep Menu Costs Current" below.)