Pricing your menu to achieve the highest profit from the guest selection is the question in optimizing financial performance in today’s difficult operational environment. There are some misunderstandings about food cost ratios and their effect on the bottom line.
Entree items that have to large a price spread can reduce the bottom line because customers will often migrate to the lower priced menu items. They are getting the same service, view and atmosphere that they would if they ordered the higher priced steak or lobster. Although the food cost % of the steak and lobster is higher, the fact is that for the same guest that ordered the steak priced at $26 at a 40% food cost $10.40 or $15.60 profit is adding more to the profit of your restaurant than the $17 menu priced broiled haddock that has a 30% food cost $5.10 or $11.90 profit. The difference in profit is $3.70. If you serve 300 guest in your restaurant a day this would be $1110.00 a day. You see where I am going with this.
A menu should be priced so the items that get ordered the most bring the most profit to the restaurant.
So the question is how do you get your guest to order the item that creates more profit in the restaurant. Lets lower the price of the steak by $2.00 to $24.00 and increase the price of the haddock by $2.00 to $19.00 The result you are looking for here is for the guest to order the item which generates more money per person. Even if the sale of the haddock still outpaces the steak, you still generate more money from the sale of the haddock. The food cost of the haddock has now fallen to 26.84%, $13.90 profit per person. Yes the food cost of the steak has risen to 43.33% $10.40, $13.60 profit.
The profit margin per person for items that are priced differently are now almost equal. The tendency of the guest might still be to order the lower priced item but the profit you make from that item will be the same or more than the higher priced item. It’s a win, win for you and for the guest. Your menu looks more in line price wise and your overall items generate more profit for the restaurant.
The bottom line is that if you are targeting a 35% food cost and all of your menu items have been priced in that range. STOP, and look at the spread and narrow the difference on entree pricing. By raising the price of the lower priced most ordered item to narrow the price gap, you could be generating a huge amount of profit to your operation.