How to calculate your menu costs and profitability

The process of establishing your menu involves a lot of creativity as well as a good understanding of your customer base. However, there is also a strong element of calculation required, especially when it comes to stripping back to the basics of costs and identifying where you could make improvements where profitability is concerned. Pricing dishes too high or low could be disastrous for sales so this is an element of running a restaurant that it’s essential to master. If you want to be able to better manage your menu costs, then these are some of the calculations that are likely to come in useful.

 

Food cost

This essential ratio is basically the cost of ingredients and the income that those ingredients generate when compiled into a dish. There are a number of different ways to approach this including:

  • Food cost per serving – this is simply the total cost of ingredients used per serving and will give you a basic idea of how much each serving costs to make.
  • Food cost percentage – this is the value of food costs to revenue expressed as a percentage. A percentage of between 28% and 35% is what most restaurant businesses will be aiming for to ensure they remain profitable. This is calculated by adding the value of inventory at the start of the week to purchases made during the week, less the value of inventory left at the end of the week, divided by total food sales. Whatever the final percentage is will be the percentage of your revenue that is being used to cover food costs.
  • Ideal food cost percentage – this percentage figure is total food costs divided by total food sales. The difference between this percentage and the food cost percentage will give you an idea of where change needs to be made to optimise costs and improve profitability. For example, if the ideal food cost percentage is lower than the actual food cost percentage then food costs are eating into revenue. Making changes such as adjusting menu pricing or finding more cost-effective vendors could help to bring the actual food cost percentage down.

 

Setting menu prices

Using the information you’ve generated for your menu items from the calculations above it becomes much easier to set menu prices that will improve profitability. For example, you can establish the ideal menu price for a dish by dividing the cost per serving by the ideal food cost percentage. This will provide information on whether menu items at their current cost are being over – or under – priced. When you’re changing menu prices it’s essential to ensure that you also track sales so you can see how this is having an impact with your customers. For example, if you increase an item price on the menu and sales slow down significantly then it may be necessary to revert to a lower price and look for a cheaper way to put the dish together.

These essential calculations provide crucial insights that can be transformative for restaurant businesses looking to optimise costs and increase profitability.

 

Save time and let your ePOS do the hard work

If you’re looking to overhaul your menu pricing and stock management or just save time and build confidence introducing new items into your menu, it could be a good idea to invest in a bespoke ePOS which will do a lot of the heavy lifting for you. Our innovative menu creator costs new recipes before you produce them. It can predict sales, prep time, cooking time and potential profits. The system then tracks sales and reveals which recipes are making the biggest profit. Data is all integrated with your ePOS database and instantly available.

This enables you to quickly and easily see which menu items are performing the strongest, as well as seeing which items could be optimised further to increase profitability. This is a great way to increase your daily financial balance without increasing the costs that your customers have to pay. Plus, the time saved by having your ePOS handle this empowers you to focus on other important areas of business.

Learn more about how a bespoke ePOS could improve your menu management, costings, stock management and more on our website here. To find out more, give us a call on + 44 (0) 1293 789 500 today.

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About Us

We are an ePOS systems company specialising in the casual and fine dining sectors, and have been designing, developing and supplying ePOS to restaurants for over 30 years.

Whether you are a single restaurant or a national chain, we can help.