Your #1 Restaurant Profit Tool

Right behind the guest experience, the menu is arguably the second most important marketing tool in any restaurant. The selection of menu offerings and corresponding price points is usually a key attraction for both first-time customers and regulars alike. Some restaurants spend thousands of dollars on menu design, including eye-catching graphics, unique formats and appetizing menu descriptions.

But consider this – your menu may get them in the door, and your prices, recipes and service might even inspire them to return. But if your restaurant isn’t making an adequate profit on every food or beverage item you sell, it may not matter how often guests return. That’s because your menu is not only an important marketing tool – it’s also your number one profit tool.

The difference between what it costs your restaurant to produce a menu item and what you sell it for is your gross profit margin. If there is not enough gross profit margin – then there might not be enough left over for an adequate net profit once all other expenses are deducted.

Menu prices are typically based upon how much your guest is willing to pay for what you have to offer. Your customers might be willing to pay $10 for a really good gourmet sandwich, but if that sandwich cost you $8 to make – you’ll lose money every time you sell one. Also, most customers will refuse pay $24 for that sandwich just because the recipe and ingredients make it an expensive item for the restaurant to produce.

Value is a perception not a calculation. Value is something people feel, not something we tell them they get.
– Simon Sinek

There are two key factors to consider when establishing competitive menu pricing. The first is value perception.

Customer value perception is influenced by a variety of factors. Your location, concept, service style, ambiance and the type of food you serve all help to form the initial perceptions and expectations of your guests.

In essence, value perception within your market plays a big role in establishing your price ceiling.

Another big influence on determining menu pricing is your cost. The cost of a menu item dictates the lowest price you can charge if you hope to make an adequate profit margin. Therefore, cost dictates the basement price.

If you have a high price ceiling but a low-cost basis, you have more opportunity to make a healthy and predictable restaurant profit margin.

On the other hand, if the cost to produce a menu item forces you to charge more than what most guests are willing to pay, you’ll need to either find a way to reduce that cost or consider removing the item from your menu.

Knowing what each of your menu items costs you to produce is one of the most basic yet often overlooked best practices in many independent restaurant operations.

When’s the last time you calculated what it cost to create your restaurant’s menu items? If it’s been more than three months, you may be missing out on many opportunities to make needed menu and/or pricing changes that will help your restaurant become more profitable.

Looking for more strategies to streamline your menu and maximize your restaurant profit? Read our article When to Raise Prices and How to Do It and check out our Menu Costing Basics course to sharpen your restaurant’s number one profit tool.

Have a profitable week!

The RestaurantOwner.com Team